FGBI 10-Q Quarterly Report March 31, 2016

FIRST GUARANTY BANCSHARES, INC.

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10-Q 1 form10q033116.htm FIRST GUARANTY BANCSHARES, INC. MARCH 31, 2016 FORM 10-Q Submission Documents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended March 31, 2016

Commission File Number: 001-37621

FIRST GUARANTY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Louisiana	26-0513559
(State or other jurisdiction incorporation or organization)	(I.R.S. Employer Identification Number)

400 East Thomas Street
Hammond, Louisiana	70401
(Address of principal executive offices)	(Zip Code)

(985) 345-7685
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

As of May 13 , 2016 the registrant had 7,609,194 shares of $1 par value common stock outstanding.

Table of Contents

		Page
Part I.	Financial Information

Item 1.	Financial Statements (unaudited)	3

	Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015	3

	Consolidated Statements of Income for the three months ended March 31, 2016 and 2015	4

	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and 2015	5

	Consolidated Statements of Shareholders' Equity for the three months ended March 31, 2016 and 2015	6

	Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015	7

	Notes to Unaudited Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44

Item 4.	Controls and Procedures	47

Part II.	Other Information	47

Item 1.	Legal Proceedings	47

Item 1A.	Risk Factors	47

Item 6.	Exhibits	48

Signatures		49

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except share data)	March 31, 2016		December 31, 2015
Assets
Cash and cash equivalents:
Cash and due from banks	$	25,600	$	36,690
Federal funds sold		221		582
Cash and cash equivalents		25,821		37,272

Interest-earning time deposits with banks		747		997

Investment securities:
Available for sale, at fair value		407,513		376,369
Held to maturity, at cost ( estimated fair value of $149,834 and $168,148 respectively )		149,243		169,752
Investment securities		556,756		546,121

Federal Home Loan Bank stock, at cost		1,304		935

Loans, net of unearned income		854,776		841,583
Less: allowance for loan losses		9,415		9,415
Net loans		845,361		832,168

Premises and equipment, net		21,741		22,019
Goodwill		1,999		1,999
Intangible assets, net		1,310		1,394
Other real estate, net		1,226		1,577
Accrued interest receivable		6,325		6,015
Other assets		6,407		9,256
Total Assets	$	1,468,997	$	1,459,753

Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing demand	$	221,897	$	213,203
Interest-bearing demand		417,890		409,209
Savings		86,312		81,448
Time		574,628		592,010
Total deposits		1,300,727		1,295,870

Short-term borrowings		-		1,800
Accrued interest payable		2,282		1,707
Senior long-term debt		25,051		25,824
Junior subordinated debentures		14,605		14,597
Other liabilities		3,029		1,731
Total Liabilities		1,345,694		1,341,529

Shareholders' Equity
Common stock:
$1 par value - authorized 100,600,000 shares; issued 7,609,194 shares		7,609		7,609
Surplus		61,584		61,584
Retained earnings		51,866		49,932
Accumulated other comprehensive income (loss)		2,244		(901	)
Total Shareholders' Equity		123,303		118,224
Total Liabilities and Shareholders' Equity	$	1,468,997	$	1,459,753

See Notes to Consolidated Financial Statements

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (unaudited)

	Three Months Ended March 31,
(in thousands, except share data)	2016		2015
Interest Income:
Loans (including fees)	$	10,801	$	10,739
Deposits with other banks		30		20
Securities (including FHLB stock)		3,589		3,345
Total Interest Income		14,420		14,104

Interest Expense:
Demand deposits		614		358
Savings deposits		18		9
Time deposits		1,564		1,843
Borrowings		392		34
Total Interest Expense		2,588		2,244

Net Interest Income		11,832		11,860
Less: Provision for loan losses		843		610
Net Interest Income after Provision for Loan Losses		10,989		11,250

Noninterest Income:
Service charges, commissions and fees		657		646
ATM and debit card fees		444		426
Net gains on securities		354		316
Other		379		354
Total Noninterest Income		1,834		1,742

Noninterest Expense:
Salaries and employee benefits		4,097		4,046
Occupancy and equipment expense		972		983
Other		3,030		2,864
Total Noninterest Expense		8,099		7,893

Income Before Income Taxes		4,724		5,099
Less: Provision for income taxes		1,573		1,705
Net Income		3,151		3,394
Preferred Stock Dividends		-		(99	)
Income Available to Common Shareholders	$	3,151	$	3,295

Per Common Share:
Earnings	$	0.41	$	0.48
Cash dividends paid	$	0.16	$	0.15

Weighted Average Common Shares Outstanding		7,609,194		6,920,022

See Notes to Consolidated Financial Statements

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

	Three Months Ended March 31,
(in thousands)	2016			2015
Net Income	$	3,151		$	3,394
Other comprehensive income:
Unrealized gains on securities:
Unrealized holding gains arising during the period		5,119			6,759
Reclassification adjustments for gains included in net income		(354	)		(316	)
Change in unrealized gains on securities		4,765			6,443
Tax impact		(1,620	)		(2,190	)
Other comprehensive income		3,145			4,253
Comprehensive Income	$	6,296		$	7,647

See Notes to Consolidated Financial Statements

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)

	Series C												Accumulated
	Preferred		Common										Other
	Stock		Stock				Treasury			Retained			Comprehensive
	$1,000 Par		$1 Par		Surplus		Stock			Earnings			Income/(Loss)			Total
( in thousands, except per share data )
Balance December 31, 2014	$	39,435	$	6,923	$	51,646	$	(54	)	$	41,392		$	241		$	139,583
Net income		-		-		-		-			3,394			-			3,394
Other comprehensive income		-		-		-		-			-			4,253			4,253
Cash dividends on common stock ($0.15 per share)		-		-		-		-			(1,007	)		-			(1,007	)
Preferred stock dividend		-		-		-		-			(99	)		-			(99	)
Balance March 31, 2015 (unaudited)	$	39,435	$	6,923	$	51,646	$	(54	)	$	43,680		$	4,494		$	146,124

Balance December 31, 2015	$	-	$	7,609	$	61,584	$	-		$	49,932		$	(901	)	$	118,224
Net income		-		-		-		-			3,151			-			3,151
Other comprehensive income		-		-		-		-			-			3,145			3,145
Cash dividends on common stock ($0.16 per share)		-		-		-		-			(1,217	)		-			(1,217	)
Balance March 31, 2016 (unaudited)	$	-	$	7,609	$	61,584	$	-		$	51,866		$	2,244		$	123,303

See Notes to Consolidated Financial Statements

FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	Three Months Ended March 31,
(in thousands)	2016			2015
Cash Flows From Operating Activities
Net income	$	3,151		$	3,394
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		843			610
Depreciation and amortization		530			530
Amortization/Accretion of investments		529			527
Gain on sale/call of securities		(354	)		(316	)
Gain on sale of assets		(60	)		-
ORE write downs and loss on disposition		34			50
FHLB stock dividends		(1	)		(1	)
Change in other assets and liabilities, net		2,766			1,168
Net Cash Provided By Operating Activities		7,438			5,962

Cash Flows From Investing Activities
Proceeds from maturities and calls of certificates of deposit		250			500
Proceeds from maturities and calls of HTM securities		20,428			6,487
Proceeds from maturities, calls and sales of AFS securities		224,142			291,608
Funds Invested in AFS securities		(250,617	)		(319,246	)
Proceeds from sale/redemption of Federal Home Loan Bank stock		-			1,032
Funds invested in Federal Home Loan Bank stock		(368	)		(867	)
Net increase in loans		(14,036	)		(6,367	)
Purchase of premises and equipment		(1,020	)		(473	)
Proceeds from sales of premises and equipment		950			-
Proceeds from sales of other real estate owned		317			-
Net Cash (Used In) Investing Activities		(19,954	)		(27,326	)

Cash Flows From Financing Activities
Net increase in deposits		4,857			23,225
Net decrease in federal funds purchased and short-term borrowings		(1,800	)		-
Repayment of long-term borrowings		(775	)		(150	)
Dividends paid		(1,217	)		(1,106	)
Net Cash Provided By Financing Activities		1,065			21,969

Net (Decrease) Increase In Cash and Cash Equivalents		(11,451	)		605
Cash and Cash Equivalents at the Beginning of the Period		37,272			44,575
Cash and Cash Equivalents at the End of the Period	$	25,821		$	45,180

Noncash Activities:
Loans transferred to foreclosed assets	$	-		$	215

Cash Paid During The Period:
Interest on deposits and borrowed funds	$	2,013		$	2,041
Income taxes	$	-		$	400

See Notes to the Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles. The consolidated financial statements and the footnotes of First Guaranty Bancshares, Inc. ("First Guaranty" or the “Company”) thereto should be read in conjunction with the audited financial statements and note disclosures for First Guaranty previously filed with the Securities and Exchange Commission in First Guaranty’s Annual Report filed on Form 10-K for the year ended December 31, 2015.

The consolidated financial statements include the accounts of First Guaranty Bancshares, Inc. and its wholly owned subsidiary First Guaranty Bank (the "Bank"). All significant intercompany balances and transactions have been eliminated in consolidation.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of the consolidated financial statements. Those adjustments are of a normal recurring nature. The results of operations at March 31, 2016 and for the three month periods ended March 31, 2016 and 2015 are not necessarily indicative of the results expected for the full year or any other interim period. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are susceptible to significant change in the near term are the allowance for loan losses, valuation of goodwill, intangible assets and other purchase accounting adjustments.

Note 2. Recent Accounting Pronouncements

In January 2016, the FASB issued ASU 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities". The ASU amendments include changes related to how certain equity investments are measured, recognize changes in the fair value of financial certain liabilities measured under the fair value option, and disclose and present financial assets and liabilities on First Guaranty's consolidated financial statements. Additionally, the ASU will also require entities to present financial assets and financial liabilities separately, grouped by measurement category and form of financial asset in the statement of financial position or in the accompanying notes to the financial statements. Entities will also no longer have to disclose the methods and significant assumptions for financial instruments measured at amortized cost, but will be required to measure such instruments under the "exit price" notion for disclosure purposes. The ASU is effective for annual and interim periods beginning after December 15, 2017. The adoption of this ASU is not expected to have a material effect on First Guaranty's Consolidated Financial Statements.

In February 2016, the FASB issued ASU 2016-02, "Conforming Amendments Related to Leases". This ASU amends the codification regarding leases in order to increase transparency and comparability. The ASU requires companies to recognize lease assets and liabilities on the statement of condition and disclose key information about leasing arrangements. A lessee would recognize a liability to make lease payments and a right-of-use asset representing its right to use the leased asset for the lease term. The ASU is effective for annual and interim periods beginning after December 15, 2018. The adoption of this ASU is not expected to have a material effect on First Guaranty's Consolidated Financial Statements.

Note 3. Securities

A summary comparison of securities by type at March 31, 2016 and December 31, 2015 is shown below.

	March 31, 2016									December 31, 2015
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale:
U.S Treasuries	$	9,000	$	-	$	-		$	9,000	$	29,999	$	-	$	-		$	29,999
U.S. Government Agencies		214,787		516		(10	)		215,293		165,364		-		(1,553	)		163,811
Corporate debt securities		107,443		3,335		(1,913	)		108,865		105,680		2,259		(2,803	)		105,136
Mutual funds or other equity securities		580		8		-			588		580		2		-			582
Municipal bonds		44,030		1,245		(14	)		45,261		47,339		899		(5	)		48,233
Mortgage-backed securities		28,233		278		(5	)		28,506		28,891		-		(283	)		28,608
Total available-for-sale securities	$	404,073	$	5,382	$	(1,942	)	$	407,513	$	377,853	$	3,160	$	(4,644	)	$	376,369

Held-to-maturity:
U.S. Government Agencies	$	59,348	$	13	$	(36	)	$	59,325	$	77,343	$	-	$	(721	)	$	76,622
Mortgage-backed securities		89,895		632		(18	)		90,509		92,409		9		(892	)		91,526
Total held-to-maturity securities	$	149,243	$	645	$	(54	)	$	149,834	$	169,752	$	9	$	(1,613	)	$	168,148

The scheduled maturities of securities at March 31, 2016, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities due to call or prepayments. Mortgage-backed securities are not due at a single maturity because of amortization and potential prepayment of the underlying mortgages. For this reason they are presented separately in the maturity table below.

	March 31, 2016
(in thousands)	Amortized Cost		Fair Value
Available For Sale:
Due in one year or less	$	16,977	$	17,047
Due after one year through five years		126,906		128,355
Due after five years through 10 years		193,719		194,488
Over 10 years		38,238		39,117
Subtotal		375,840		379,007
Mortgage-backed Securities		28,233		28,506
Total available-for-sale securities	$	404,073	$	407,513

Held to Maturity:
Due in one year or less	$	-	$	-
Due after one year through five years		22,804		22,806
Due after five years through 10 years		36,544		36,519
Over 10 years		-		-
Subtotal		59,348		59,325
Mortgage-backed Securities		89,895		90,509
Total held to maturity securities	$	149,243	$	149,834

At March 31, 2016 $438.7 million of First Guaranty's securities were pledged to secure public fund deposits and borrowings. The pledged securities had a market value of $439.4 million as of March 31, 2016.

The following is a summary of the fair value of securities with gross unrealized losses and an aging of those gross unrealized losses at March 31, 2016.

							At March 31, 2016
	Less Than 12 Months						12 Months or More						Total
(in thousands)	Number of Securities	Fair Value		Gross Unrealized Losses			Number of Securities	Fair Value		Gross Unrealized Losses			Number of Securities	Fair Value		Gross Unrealized Losses
Available for sale:
U.S. Treasuries	1	$	9,000	$	-		-	$	-	$	-		1	$	9,000	$	-
U.S. Government agencies	4		19,993		(7	)	3		4,997		(3	)	7		24,990		(10	)
Corporate debt securities	48		10,123		(483	)	53		13,248		(1,430	)	101		23,371		(1,913	)
Mutual funds or other equity securities	-		-		-		-		-		-		-		-		-
Municipal bonds	1		1,792		(14	)	-		-		-		1		1,792		(14	)
Mortgage-backed securities	2		3,053		(5	)	-		-		-		2		3,053		(5	)
Total available-for-sale securities	56	$	43,961	$	(509	)	56	$	18,245	$	(1,433	)	112	$	62,206	$	(1,942	)

Held to maturity:
U.S. Government agencies	1		6,679		(3	)	5		21,995		(33	)	6		28,674		(36	)
Mortgage-backed securities	3		9,305		(10	)	1		2,772		(8	)	4		12,077		(18	)
Total held to maturity	4	$	15,984	$	(13	)	6	$	24,767	$	(41	)	10	$	40,751	$	(54	)

The following is a summary of the fair value of securities with gross unrealized losses and an aging of those gross unrealized losses at December 31, 2015.

							At December 31, 2015
	Less Than 12 Months						12 Months or More						Total
(in thousands)	Number of Securities	Fair Value		Gross Unrealized Losses			Number of Securities	Fair Value		Gross Unrealized Losses			Number of Securities	Fair Value		Gross Unrealized Losses
Available for sale:
U.S. Treasuries	2	$	9,999	$	-		-	$	-	$	-		2	$	9,999	$	-
U.S. Government agencies	49		116,473		(921	)	11		47,338		(632	)	60		163,811		(1,553	)
Corporate debt securities	112		31,414		(1,509	)	27		5,344		(1,294	)	139		36,758		(2,803	)
Mutual funds or other equity securities	-		-		-		-		-		-		-		-		-
Municipal bonds	2		679		(5	)	-		-		-		2		679		(5	)
Mortgage-backed securities	14		28,608		(283	)	-		-		-		14		28,608		(283	)
Total available for sale	179	$	187,173	$	(2,718	)	38	$	52,682	$	(1,926	)	217	$	239,855	$	(4,644	)

Held to maturity:
U.S. Government agencies	16	$	51,865	$	(404	)	7	$	23,852	$	(317	)	23	$	75,717	$	(721	)
Mortgage-backed securities	39		82,863		(892	)	-		-		-		39		82,863		(892	)
Total held to maturity	55	$	134,728	$	(1,296	)	7	$	23,852	$	(317	)	62	$	158,580	$	(1,613	)

As of March 31, 2016, 122 of First Guaranty's debt securities had unrealized losses totaling 1.9% of the individual securities' amortized cost basis and 0.4% of First Guaranty's total amortized cost basis of the investment securities portfolio. 62 of the 122 securities had been in a continuous loss position for over 12 months at such date. The 62 securities had an aggregate amortized cost basis of $44.5 million and an unrealized loss of $1.5 million at March 31, 2016. Management has the intent and ability to hold these debt securities until maturity or until anticipated recovery.

Securities are evaluated for other-than-temporary impairment at least quarterly and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, (iii) the recovery of contractual principal and interest and (iv) the intent and ability of First Guaranty to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Investment securities issued by the U.S. Government and Government sponsored enterprises with unrealized losses and the amount of unrealized losses on those investment securities are the result of changes in market interest rates will not be other-than-temporarily impaired. First Guaranty has the ability and intent to hold these securities until recovery, which may not be until maturity.

Corporate debt securities in a loss position consist primarily of corporate bonds issued by businesses in the financial, insurance, utility, manufacturing, industrial, consumer products and oil and gas industries. Two issuers were determined during the fourth quarter of 2015 to have other-than-temporary impairment losses. First Guaranty believes that the remaining issuers will be able to fulfill the obligations of these securities based on evaluations described above. First Guaranty has the ability and intent to hold these securities until they recover, which could be at their maturity dates.

The following table presents a roll-forward of the amount of credit losses on debt securities held by First Guaranty for which a portion of OTTI was recognized in other comprehensive income for the quarter ending March 31, 2016:

(in thousands)
Beginning balance of credit losses at December 31, 2015	$	175
Other-than-temporary impairment credit losses on securities not previously OTTI		-
Increases for additional credit losses on securities previously determined to be OTTI		-
Reduction for increases in cash flows		-
Reduction due to credit impaired securities sold or fully settled		-
Ending balance of cumulative credit losses recognized in earnings at March 31, 2016	$	175

In the first quarter of 2016 there were no other-than-temporary impairment credit losses on securities for which we had previously recognized OTTI. For securities that have indications of credit related impairment, management analyzes future expected cash flows to determine if any credit related impairment is evident. Estimated cash flows are determined using management's best estimate of future cash flows based on specific assumptions. The assumptions used to determine the cash flows were based on estimates of loss severity and credit default probabilities. Management reviews reports from credit rating agencies and public filings of issuers.

The total non-credit related other-than-temporary impairment losses included in other comprehensive income was $0.3 million at March 31, 2016.

At March 31, 2016, First Guaranty's exposure to bond issuers that exceeded 10% of shareholders’ equity is below:

	At March 31, 2016
(in thousands)	Amortized Cost		Fair Value
Federal Home Loan Bank (FHLB)		89,944		90,091
Federal Home Loan Mortgage Corporation (Freddie Mac-FHLMC)		60,145		60,458
Federal National Mortgage Association (Fannie Mae-FNMA)		134,612		135,261
Federal Farm Credit Bank (FFCB)		107,561		107,823
Total	$	392,262	$	393,633

Note 4. Loans

The following table summarizes the components of First Guaranty's loan portfolio as of March 31, 2016 and December 31, 2015:

	March 31, 2016						December 31, 2015
(in thousands except for %)	Balance			As % of Category			Balance			As % of Category
Real Estate:
Construction & land development	$	69,875			8.1	%	$	56,132			6.6	%
Farmland		22,037			2.6	%		17,672			2.1	%
1- 4 Family		131,543			15.3	%		129,610			15.4	%
Multifamily		10,830			1.3	%		12,629			1.5	%
Non-farm non-residential		333,048			38.9	%		323,363			38.3	%
Total Real Estate		567,333			66.2	%		539,406			63.9	%
Non-Real Estate:
Agricultural		23,266			2.7	%		25,838			3.1	%
Commercial and industrial		206,178			24.1	%		224,201			26.6	%
Consumer and other		59,925			7.0	%		54,163			6.4	%
Total Non-Real Estate		289,369			33.8	%		304,202			36.1	%
Total loans before unearned income		856,702			100.0	%		843,608			100.0	%
Unearned income		(1,926	)					(2,025	)
Total loans net of unearned income	$	854,776					$	841,583

The following table summarizes fixed and floating rate loans by contractual maturity, excluding nonaccrual loans, as of March 31, 2016 and December 31, 2015 unadjusted for scheduled principal payments, prepayments, or repricing opportunities. The average life of the loan portfolio may be substantially less than the contractual terms when these adjustments are considered.

	March 31, 2016							December 31, 2015
(in thousands)	Fixed		Floating		Total			Fixed		Floating		Total
One year or less	$	90,880	$	53,609	$	144,489		$	86,975	$	48,111	$	135,086
More Than One to five years		315,947		225,303		541,250			315,685		246,374		562,059
More Than Five to 15 years		67,975		32,709		100,684			49,197		31,456		80,653
Over 15 years		38,086		7,771		45,857			36,438		9,333		45,771
Subtotal	$	512,888	$	319,392		832,280		$	488,295	$	335,274		823,569
Nonaccrual loans						24,422							20,039
Total loans before unearned income						856,702							843,608
Unearned income						(1,926	)						(2,025	)
Total loans net of unearned income					$	854,776						$	841,583

As of March 31, 2016 $127.0 million of floating rate loans were at their interest rate floor. At December 31, 2015 $132.9 million of floating rate loans were at the floor rate. Nonaccrual loans have been excluded from these totals.

The following tables present the age analysis of past due loans at March 31, 2016 and December 31, 2015:

	As of March 31, 2016
(in thousands)	30-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Total Loans			Recorded Investment 90 Days Accruing
Real Estate:
Construction & land development	$	461	$	555	$	1,016	$	68,859	$	69,875		$	-
Farmland		-		118		118		21,919		22,037			-
1 - 4 family		3,204		4,965		8,169		123,374		131,543			216
Multifamily		-		5,262		5,262		5,568		10,830			-
Non-farm non-residential		1,184		2,064		3,248		329,800		333,048			129
Total Real Estate		4,849		12,964		17,813		549,520		567,333			345
Non-Real Estate:
Agricultural		-		3,537		3,537		19,729		23,266			-
Commercial and industrial		336		8,266		8,602		197,576		206,178			-
Consumer and other		310		-		310		59,615		59,925			-
Total Non-Real Estate		646		11,803		12,449		276,920		289,369			-
Total loans before unearned income	$	5,495	$	24,767	$	30,262	$	826,440	$	856,702		$	345
Unearned income										(1,926	)
Total loans net of unearned income									$	854,776

	As of December 31, 2015
(in thousands)	30-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Total Loans			Recorded Investment 90 Days Accruing
Real Estate:
Construction & land development	$	12	$	558	$	570	$	55,562	$	56,132		$	-
Farmland		-		136		136		17,536		17,672			19
1 - 4 family		2,546		4,929		7,475		122,135		129,610			391
Multifamily		-		9,045		9,045		3,584		12,629			-
Non-farm non-residential		1,994		2,934		4,928		318,435		323,363			-
Total Real Estate		4,552		17,602		22,154		517,252		539,406			410
Non-Real Estate:
Agricultural		2,346		2,628		4,974		20,864		25,838			-
Commercial and industrial		314		48		362		223,839		224,201			-
Consumer and other		965		171		1,136		53,027		54,163			-
Total Non-Real Estate		3,625		2,847		6,472		297,730		304,202			-
Total loans before unearned income	$	8,177	$	20,449	$	28,626	$	814,982	$	843,608		$	410
Unearned income										(2,025	)
Total loans net of unearned income									$	841,583

The tables above include $24.4 million and $20.0 million of nonaccrual loans at March 31, 2016 and December 31, 2015, respectively. See the tables below for more detail on nonaccrual loans.

The following is a summary of nonaccrual loans by class at the dates indicated:

(in thousands)	As of March 31, 2016		As of December 31, 2015
Real Estate:
Construction & land development	$	555	$	558
Farmland		118		117
1 - 4 family		4,749		4,538
Multifamily		5,262		9,045
Non-farm non-residential		1,935		2,934
Total Real Estate		12,619		17,192
Non-Real Estate:
Agricultural		3,537		2,628
Commercial and industrial		8,266		48
Consumer and other		-		171
Total Non-Real Estate		11,803		2,847
Total Nonaccrual Loans	$	24,422	$	20,039

The following table identifies the credit exposure of the loan portfolio by specific credit ratings as of the dates indicated:

	As of March 31, 2016											As of December 31, 2015
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Total			Pass		Special Mention		Substandard		Doubtful		Total
Real Estate:
Construction & land development	$	65,603	$	181	$	4,091	$	-	$	69,875		$	51,681	$	386	$	4,065	$	-	$	56,132
Farmland		21,919		-		118		-		22,037			17,554		-		118		-		17,672
1 - 4 family		118,091		6,448		7,004		-		131,543			115,878		6,425		7,307		-		129,610
Multifamily		3,532		-		7,298		-		10,830			3,584		-		9,045		-		12,629
Non-farm non-residential		307,390		3,571		22,087		-		333,048			296,682		3,288		23,393		-		323,363
Total Real Estate		516,535		10,200		40,598		-		567,333			485,379		10,099		43,928		-		539,406
Non-Real Estate:
Agricultural		19,726		3		3,537		-		23,266			20,860		4		4,974		-		25,838
Commercial and industrial		195,819		566		9,793		-		206,178			214,184		471		9,546		-		224,201
Consumer and other		59,650		153		122		-		59,925			53,779		178		206		-		54,163
Total Non-Real Estate		275,195		722		13,452		-		289,369			288,823		653		14,726		-		304,202
Total loans before unearned income	$	791,730	$	10,922	$	54,050	$	-	$	856,702		$	774,202	$	10,752	$	58,654	$	-	$	843,608
Unearned income										(1,926	)										(2,025	)
Total loans net of unearned income									$	854,776										$	841,583

Note 5. Allowance for Loan Losses

A summary of changes in the allowance for loan losses, by portfolio type, for the three months ended March 31, 2016 and 2015 are as follows:

	For the Three Months Ended March 31,
	2016												2015
(in thousands)	Beginning Allowance (12/31/15)		Charge-offs			Recoveries		Provision			Ending Allowance (3/31/16)		Beginning Allowance (12/31/14)		Charge-offs			Recoveries		Provision			Ending Allowance(3/31/15)
Real Estate:
Construction & land development	$	962	$	-		$	1	$	199		$	1,162	$	702	$	-		$	1	$	(78	)	$	625
Farmland		54		-			-		(33	)		21		21		-			-		(4	)		17
1 - 4 family		1,771		(59	)		8		(528	)		1,192		2,131		(6	)		48		148			2,321
Multifamily		557		-			361		(606	)		312		813		-			10		(9	)		814
Non-farm non-residential		3,298		(641	)		-		399			3,056		2,713		-			2		(425	)		2,290
Total real estate		6,642		(700	)		370		(569	)		5,743		6,380		(6	)		61		(368	)		6,067
Non-Real Estate:
Agricultural		16		-			-		(7	)		9		293		(336	)		-		69			26
Commercial and industrial		2,527		(241	)		4		1,049			3,339		1,797		-			5		329			2,131
Consumer and other		230		(332	)		56		370			324		371		(76	)		51		228			574
Unallocated		-		-			-		-			-		264		-			-		352			616
Total Non-Real Estate		2,773		(573	)		60		1,412			3,672		2,725		(412	)		56		978			3,347
Total	$	9,415	$	(1,273	)	$	430	$	843		$	9,415	$	9,105	$	(418	)	$	117	$	610		$	9,414

Negative provisions are caused by changes in the composition and credit quality of the loan portfolio. The result is an allocation of the loan loss reserve from one category to another.

A summary of the allowance and loans individually and collectively evaluated for impairment are as follows :

	As of March 31, 2016
(in thousands)	Allowance Individually Evaluated for Impairment		Allowance Collectively Evaluated for Impairment		Total Allowance for Credit Losses		Loans Individually Evaluated for Impairment		Loans Collectively Evaluated for Impairment		Total Loans before Unearned Income
Real Estate:
Construction & land development	$	-	$	1,162	$	1,162	$	365	$	69,510	$	69,875
Farmland		-		21		21		-		22,037		22,037
1 - 4 family		222		970		1,192		2,967		128,576		131,543
Multifamily		62		250		312		5,262		5,568		10,830
Non-farm non-residential		932		2,124		3,056		11,801		321,247		333,048
Total Real Estate		1,216		4,527		5,743		20,395		546,938		567,333
Non-Real Estate:
Agricultural		-		9		9		3,459		19,807		23,266
Commercial and industrial		1,886		1,453		3,339		9,455		196,723		206,178
Consumer and other		-		324		324		-		59,925		59,925
Unallocated		-		-		-		-		-		-
Total Non-Real Estate		1,886		1,786		3,672		12,914		276,455		289,369
Total	$	3,102	$	6,313	$	9,415	$	33,309	$	823,393	$	856,702
Unearned Income												(1,926	)
Total loans net of unearned income											$	854,776

	As of December 31, 2015
(in thousands)	Allowance Individually Evaluated for Impairment		Allowance Collectively Evaluated for Impairment		Total Allowance for Credit Losses		Loans Individually Evaluated for Impairment		Loans Collectively Evaluated for Impairment		Total Loans before Unearned Income
Real Estate:
Construction & land development	$	-	$	962	$	962	$	368	$	55,764	$	56,132
Farmland		-		54		54		-		17,672		17,672
1 - 4 family		611		1,160		1,771		3,049		126,561		129,610
Multifamily		454		103		557		9,045		3,584		12,629
Non-farm non-residential		1,298		2,000		3,298		13,646		309,717		323,363
Total Real Estate		2,363		4,279		6,642		26,108		513,298		539,406
Non-Real Estate:
Agricultural		-		16		16		4,863		20,975		25,838
Commercial and industrial		-		2,527		2,527		-		224,201		224,201
Consumer and other		-		230		230		171		53,992		54,163
Unallocated		-		-		-		-		-		-
Total Non-Real Estate		-		2,773		2,773		5,034		299,168		304,202
Total	$	2,363	$	7,052	$	9,415	$	31,142	$	812,466	$	843,608
Unearned Income												(2,025	)
Total loans net of unearned income											$	841,583

A loan is considered impaired when, based on current information and events, it is probable that First Guaranty will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Payment status, collateral value and the probability of collecting scheduled principal and interest payments when due are considered in evaluating loan impairment. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

The following is a summary of impaired loans by class as of the date indicated:

	As of March 31, 2016
(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Cash Basis
Impaired Loans with no related allowance:
Real Estate:
Construction & land development	$	365	$	823	$	-	$	365	$	-	$	-
Farmland		-		-		-		-		-		-
1 - 4 family		1,011		1,322		-		1,080		13		9
Multifamily		-		-		-		-		-		-
Non-farm non-residential		3,187		3,677		-		3,196		26		29
Total Real Estate		4,563		5,822		-		4,641		39		38
Non-Real Estate:
Agricultural		3,459		3,613		-		3,520		-		-
Commercial and industrial		-		-		-		-		-		-
Consumer and other		-		-		-		-		-		-
Total Non-Real Estate		3,459		3,613		-		3,520		-		-
Total Impaired Loans with no related allowance		8,022		9,435		-		8,161		39		38

Impaired Loans w ith an allowance recorded:
Real Estate:
Construction & land development		-		-		-		-		-		-
Farmland		-		-		-		-		-		-
1 - 4 family		1,956		2,137		222		1,969		-		-
Multifamily		5,262		5,366		62		5,269		-		-
Non-farm non-residential		8,614		8,618		932		8,644		107		106
Total Real Estate		15,832		16,121		1,216		15,882		107		106
Non-Real Estate:
Agricultural		-		-		-		-		-		-
Commercial and industrial		9,455		9,455		1,886		9,474		1		2
Consumer and other		-		-		-		-		-		-
Total Non-Real Estate		9,455		9,455		1,886		9,474		1		2
Total Impaired Loans with an allowance recorded		25,287		25,576		3,102		25,356		108		108

Total Impaired Loans	$	33,309	$	35,011	$	3,102	$	33,517	$	147	$	146

The following is a summary of impaired loans by class as of the date indicated:

	As of December 31, 2015
(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Cash Basis
Impaired Loans with no related allowance:
Real Estate:
Construction & land development	$	368	$	823	$	-	$	825	$	41	$	44
Farmland		-		-		-		-		-		-
1 - 4 family		1,054		1,358		-		1,354		79		84
Multifamily		3,728		4,240		-		4,305		254		72
Non-farm non-residential		3,637		4,116		-		4,124		165		147
Total Real Estate		8,787		10,537		-		10,608		539		347
Non-Real Estate:
Agricultural		4,863		5,019		-		5,036		300		300
Commercial and industrial		-		-		-		-		-		-
Consumer and other		171		317		-		335		27		20
Total Non-Real Estate		5,034		5,336		-		5,371		327		320
Total Impaired Loans with no related allowance		13,821		15,873		-		15,979		866		667

Impaired Loans w ith an allowance recorded:
Real Estate:
Construction & land development		-		-		-		-		-		-
Farmland		-		-		-		-		-		-
1 - 4 family		1,995		2,144		611		2,079		103		125
Multifamily		-		-		-		-		-		-
Non-farm non-residential		10,009		10,841		1,298		11,035		566		569
Total Real Estate		12,004		12,985		1,909		13,114		669		694
Non-Real Estate:
Agricultural		-		-		-		-		-		-
Commercial and industrial		-		-		-		-		-		-
Consumer and other		-		-		-		-		-		-
Total Non-Real Estate		-		-		-		-		-		-
Total Impaired Loans with an allowance recorded		12,004		12,985		1,909		13,114		669		694

Total Impaired Loans	$	25,825	$	28,858	$	1,909	$	29,093	$	1,535	$	1,361

Troubled Debt Restructurings

A troubled debt restructuring ("TDR") is considered such if the lender for economic or legal reasons related to the debtor's financial difficulties grants a concession to the debtor that it would not otherwise consider. The modifications to First Guaranty's TDRs were concessions on either the interest rate charged or the amortization. The effect of the modifications to First Guaranty was a reduction in interest income. These loans have an allocated reserve in First Guaranty's allowance for loan losses. First Guaranty has not restructured any loans that are considered troubled debt restructurings in the three months ended March 31, 2016.

The following table identifies the troubled debt restructurings as of March 31, 2016 and December 31, 2015:

	March 31, 2016								December 31, 2015
	Accruing Loans								Accruing Loans
(in thousands)	Current		30-89 Days Past Due		Nonaccrual		Total TDRs		Current		30-89 Days Past Due		Nonaccrual		Total TDRs
Real Estate:
Construction & land development	$	-	$	-	$	365	$	365	$	-	$	-	$	368	$	368
Farmland		-		-		-		-		-		-		-		-
1-4 Family		-		-		-		-		-		-		1,702		1,702
Multifamily		-		-		-		-		-		-		-		-
Non-farm non residential		2,981		-		206		3,187		3,431		-		206		3,637
Total Real Estate		2,981		-		571		3,552		3,431		-		2,276		5,707
Non-Real Estate:
Agricultural		-		-		-		-		-		-		-		-
Commercial and industrial		-		-		-		-		-		-		-		-
Consumer and other		-		-		-		-		-		-		-		-
Total Non-Real Estate		-		-		-		-		-		-		-		-
Total	$	2,981	$	-	$	571	$	3,552	$	3,431	$	-	$	2,276	$	5,707

The following table discloses TDR activity for the three months ended March 31, 2016.

	Troubled Debt Restructured Loans Activity Three Months Ended March 31, 2016
(in thousands)	Beginning balance December 31, 2015		New TDRs		Charge-offs post- modification			Transferred to ORE		Paydowns			Construction to permanent financing		Restructured to market terms			Ending balance March 31, 2016
Real Estate:
Construction & land development	$	368	$	-	$	-		$	-	$	(3	)	$	-	$	-		$	365
Farmland		-		-		-			-		-			-		-			-
1 - 4 family		1,702		-		-			-		(32	)		-		(1,670	)		-
Multifamily		-		-		-			-		-			-		-			-
Non-farm non-residential		3,637		-		(5	)		-		(4	)		-		(441	)		3,187
Total Real Estate		5,707		-		(5	)		-		(39	)		-		(2,111	)		3,552
Non-Real Estate:
Agricultural		-		-		-			-		-			-		-			-
Commercial and industrial		-		-		-			-		-			-		-			-
Consumer and other		-		-		-			-		-			-		-			-
Total Non-Real Estate		-		-		-			-		-			-		-			-
Total	$	5,707	$	-	$	(5	)	$	-	$	(39	)	$	-	$	(2,111	)	$	3,552

There were no commitments to lend additional funds to debtors whose terms have been modified in a troubled debt restructuring at March 31, 2016.

Note 6. Goodwill and Other Intangible Assets

Goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to impairment testing. Other intangible assets continue to be amortized over their useful lives. First Guaranty's goodwill is the difference in purchase price over the fair value of net assets acquired from its acquisition of Homestead Bancorp in 2007. Goodwill totaled $2.0 million at March 31, 2016 and December 31, 2015. No impairment charges have been recognized on First Guaranty's intangible assets. Mortgage servicing rights decreased $4,000 to $92,000 at March 31, 2016 compared to December 31, 2015. Other intangible assets recorded include core deposit intangibles, which are subject to amortization. The weighted-average amortization period remaining for First Guaranty's core deposit intangibles is 4.2 years at March 31, 2016. The core deposits intangible reflect the value of deposit relationships, including the beneficial rates, which arose from acquisitions.

Note 7. Other Real Estate (ORE)

Other real estate owned consists of the following at the dates indicated:

(in thousands)	March 31, 2016		December 31, 2015
Real Estate Owned Acquired by Foreclosure:
Residential	$	564	$	880
Construction & land development		25		25
Non-farm non-residential		637		672
Total Other Real Estate Owned and Foreclosed Property	$	1,226	$	1,577

Loans secured by one-to-four family residential properties in the process of foreclosure totaled $0.2 million as of March 31, 2016 .

Note 8. Commitments and Contingencies

Off-balance sheet commitments

First Guaranty is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and standby and commercial letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of the involvement in particular classes of financial instruments.

The exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and commercial letters of credit is represented by the contractual notional amount of those instruments. The same credit policies are used in making commitments and conditional obligations as it does for balance sheet instruments. Unless otherwise noted, collateral or other security is not required to support financial instruments with credit risk.

Below is a summary of the notional amounts of the financial instruments with off-balance sheet risk at March 31, 2016 and December 31, 2015:

Contract Amount
(in thousands)	March 31, 2016		December 31, 2015
Commitments to Extend Credit	$	81,987	$	88,081
Unfunded Commitments under lines of credit	$	119,751	$	107,581
Commercial and Standby letters of credit	$	6,711	$	7,486

Litigation

The nature of First Guaranty’s business ordinarily results in a certain amount of claims, litigation and legal and administrative cases, all of which are considered incidental to the normal conduct of business. When First Guaranty determines it has defenses to the claims asserted, it defends itself. First Guaranty will consider settlement of cases when it is in the best interests of both First Guaranty and its shareholders.

While the final outcome of legal proceedings is inherently uncertain, based on information currently available as of March 31, 2016, any incremental liability arising from First Guaranty’s legal proceedings will not have a material adverse effect on First Guaranty’s financial position.

Note 9. Fair Value

The fair value of a financial instrument is the current amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Valuation techniques use certain inputs to arrive at fair value. Inputs to valuation techniques are the assumptions that market participants would use in pricing the asset or liability. They may be observable or unobservable. First Guaranty uses a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1 Inputs – Unadjusted quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds or credit risks) or inputs that are derived principally from or corroborated by market data by correlation or other means.

Level 3 Inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

A description of the valuation methodologies used for instruments measured at fair value follows, as well as the classification of such instruments within the valuation hierarchy.

Securities available for sale. Securities are classified within Level 1 where quoted market prices are available in an active market. Inputs include securities that have quoted prices in active markets for identical assets. If quoted market prices are unavailable, fair value is estimated using quoted prices of securities with similar characteristics, at which point the securities would be classified within Level 2 of the hierarchy. Securities classified within Level 3 in First Guaranty's portfolio as of March 31, 2016 include municipal bonds and an equity security.

Impaired loans. Loans are measured for impairment using the methods permitted by ASC Topic 310. Fair value of impaired loans is measured by either the fair value of the collateral if the loan is collateral dependent (Level 2 or Level 3), or the present value of expected future cash flows, discounted at the loan's effective interest rate (Level 3). Fair value of the collateral is determined by appraisals or by independent valuation.

Other real estate owned. Properties are recorded at the balance of the loan or at estimated fair value less estimated selling costs, whichever is less, at the date acquired. Fair values of other real estate owned ("OREO") at March 31, 2016 and December 31, 2015 are determined by sales agreement or appraisal, and costs to sell are based on estimation per the terms and conditions of the sales agreement or amounts commonly used in real estate transactions. Inputs include appraisal values or recent sales activity for similar assets in the property’s market; thus OREO measured at fair value would be classified within either Level 2 or Level 3 of the hierarchy.

Certain non-financial assets and non-financial liabilities are measured at fair value on a non-recurring basis including assets and liabilities related to reporting units measured at fair value in the testing of goodwill impairment, as well as intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment.

The following table summarizes financial assets measured at fair value on a recurring basis as of March 31, 2016 and December 31, 2015, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

(in thousands)	March 31, 2016		December 31, 2015
Available for Sale Securities Fair Value Measurements Using:
Level 1: Quoted Prices in Active Markets For Identical Assets	$	9,508	$	30,501
Level 2: Significant Other Observable Inputs		389,082		338,167
Level 3: Significant Unobservable Inputs		8,923		7,701
Securities available for sale measured at fair value	$	407,513	$	376,369

First Guaranty's valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While the methodologies used are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value.

The change in Level 1 securities available for sale from December 31, 2015 was due principally to a reduction in Treasury bills of $21.0 million. The change in Level 2 securities available for sale from December 31, 2015 was due principally to the purchase of agency securities.

The following table measures financial assets and financial liabilities measured at fair value on a non-recurring basis as of March 31, 2016 and December 31, 2015, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value:

(in thousands)	At March 31, 2016		At December 31, 2015
Impaired Loans - Fair Value Measurements Using:
Level 1: Quoted Prices in Active Markets For Identical Assets	$	-	$	-
Level 2: Significant Other Observable Inputs		259		293
Level 3: Significant Unobservable Inputs		21,926		16,401
Impaired loans measured at fair value	$	22,185	$	16,694

Other Real Estate Owned - Fair Value Measurements Using:
Level 1: Quoted Prices in Active Markets For Identical Assets	$	-	$	-
Level 2: Significant Other Observable Inputs		613		1,104
Level 3: Significant Unobservable Inputs		613		473
Other real estate owned measured at fair value	$	1,226	$	1,577

ASC 825-10 provides First Guaranty with an option to report selected financial assets and liabilities at fair value. The fair value option established by this statement permits First Guaranty to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each reporting date subsequent to implementation.

First Guaranty has chosen not to elect the fair value option for any items that are not already required to be measured at fair value in accordance with accounting principles generally accepted in the United States.

Note 10. Financial Instruments

Fair value estimates are generally subjective in nature and are dependent upon a number of significant assumptions associated with each instrument or group of similar instruments, including estimates of discount rates, risks associated with specific financial instruments, estimates of future cash flows and relevant available market information. Fair value information is intended to represent an estimate of an amount at which a financial instrument could be exchanged in a current transaction between a willing buyer and seller engaging in an exchange transaction. However, since there are no established trading markets for a significant portion of First Guaranty’s financial instruments, First Guaranty may not be able to immediately settle financial instruments; as such, the fair values are not necessarily indicative of the amounts that could be realized through immediate settlement. In addition, the majority of the financial instruments, such as loans and deposits, are held to maturity and are realized or paid according to the contractual agreement with the customer.

Quoted market prices are used to estimate fair values when available. However, due to the nature of the financial instruments, in many instances quoted market prices are not available. Accordingly, estimated fair values have been estimated based on other valuation techniques, such as discounting estimated future cash flows using a rate commensurate with the risks involved or other acceptable methods. Fair values are estimated without regard to any premium or discount that may result from concentrations of ownership of financial instruments, possible income tax ramifications or estimated transaction costs. The fair value estimates are subjective in nature and involve matters of significant judgment and, therefore, cannot be determined with precision. Fair values are also estimated at a specific point in time and are based on interest rates and other assumptions at that date. As events change the assumptions underlying these estimates, the fair values of financial instruments will change.

Disclosure of fair values is not required for certain items such as lease financing, investments accounted for under the equity method of accounting, obligations of pension and other postretirement benefits, premises and equipment, other real estate, prepaid expenses, the value of long-term relationships with depositors (core deposit intangibles) and other customer relationships, other intangible assets and income tax assets and liabilities. Fair value estimates are presented for existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses have not been considered in the estimates. Accordingly, the aggregate fair value amounts presented do not purport to represent and should not be considered representative of the underlying market or franchise value of First Guaranty.

Because the standard permits many alternative calculation techniques and because numerous assumptions have been used to estimate the fair values, reasonable comparison of the fair value information with other financial institutions' fair value information cannot necessarily be made. The methods and assumptions used to estimate the fair values of financial instruments are as follows:

Cash and due from banks, interest-bearing deposits with banks, federal funds sold and federal funds purchased.

These items are generally short-term and the carrying amounts reported in the consolidated balance sheets are a reasonable estimation of the fair values.

Investment Securities.

Fair values are principally based on quoted market prices. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments or the use of discounted cash flow analyses.

Loans Held for Sale.

Fair values of mortgage loans held for sale are based on commitments on hand from investors or prevailing market prices. These loans are classified within level 3 of the fair value hierarchy.

Loans, net.

Market values are computed present values using net present value formulas. The present value is the sum of the present value of all projected cash flows on an item at a specified discount rate. The discount rate is set as an appropriate rate index, plus or minus an appropriate spread. These loans are classified within level 3 of the fair value hierarchy.

Impaired loans

Fair value of impaired loans is measured by either the fair value of the collateral if the loan is collateral dependent (Level 2 or Level 3), or the present value of expected future cash flows, discounted at the loan's effective interest rate (Level 3). Fair value of the collateral is determined by appraisals or by independent valuation.

Accrued interest receivable.

The carrying amount of accrued interest receivable approximates its fair value.

Deposits.

The fair value of demand deposits, savings and interest-bearing demand deposits is the amount payable on demand. The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities. Deposits are classified within level 3 of the fair value hierarchy.

Accrued interest payable.

The carrying amount of accrued interest payable approximates its fair value.

Borrowings.

The carrying amount of federal funds purchased and other short-term borrowings approximate their fair values. The fair value of First Guaranty’s long-term borrowings is computed using net present value formulas. The present value is the sum of the present value of all projected cash flows on an item at a specified discount rate. The discount rate is set as an appropriate rate index, plus or minus an appropriate spread. Borrowings are classified within level 3 of the fair value hierarchy.

Other Unrecognized Financial Instruments.

The fair value of commitments to extend credit is estimated using the fees charged to enter into similar legally binding agreements, taking into account the remaining terms of the agreements and customers' credit ratings. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. Noninterest-bearing deposits are held at cost. The fair values of letters of credit are based on fees charged for similar agreements or on estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. At March 31, 2016 and December 31, 2015 the fair value of guarantees under commercial and standby letters of credit was not material.

The estimated fair values and carrying values of the financial instruments at March 31, 2016 and December 31, 2015 are presented in the following table:


	March 31, 2016				December 31, 2015
(in thousands)	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Assets
Cash and cash equivalents	$	25,821	$	25,821	$	37,272	$	37,272
Securities, available for sale		407,513		407,513		376,369		376,369
Securities, held to maturity		149,243		149,834		169,752		168,148
Federal Home Loan Bank stock		1,304		1,304		935		935
Loans, net		845,361		843,802		832,168		831,731
Accrued interest receivable		6,325		6,325		6,015		6,015

Liabilities
Deposits	$	1,300,727	$	1,301,308	$	1,295,870	$	1,296,468
Borrowings		25,051		25,051		27,624		27,624
Junior subordinated debentures		14,605		14,605		14,597		14,597
Accrued interest payable		2,282		2,282		1,707		1,707

There is no material difference between the contract amount and the estimated fair value of off-balance sheet items that are primarily comprised of short-term unfunded loan commitments that are generally at market prices.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of First Guaranty's financial condition and results of operations is intended to highlight the significant factors affecting First Guaranty's financial condition and results of operations presented in the consolidated financial statements included in this Form 10-Q. This discussion is designed to provide readers with a more comprehensive view of the operating results and financial position than would be obtained from reading the consolidated financial statements alone. Reference should be made to those statements for an understanding of the following review and analysis. The financial data at March 31, 2016 and for the three months ended March 31, 2016 and 2015 have been derived from unaudited consolidated financial statements and include, in the opinion of management, all adjustments (consisting of normal recurring accruals and provisions) necessary to present fairly First Guaranty's financial position and results of operations for such periods.

Special Note Regarding Forward-Looking Statements

Congress passed the Private Securities Litigation Act of 1995 in an effort to encourage corporations to provide information about a company's anticipated future financial performance. This act provides a safe harbor for such disclosure, which protects us from unwarranted litigation, if actual results are different from management expectations. This discussion and analysis contains forward-looking statements and reflects management’s current views and estimates of future economic circumstances, industry conditions, company performance and financial results. The words “may,” “should,” “expect,” “anticipate,” “intend,” “plan,” “continue,” “believe,” “seek,” “estimate” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to a number of factors and uncertainties, including, changes in general economic conditions, either nationally or in our market areas, that are worse than expected; competition among depository and other financial institutions; inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments; adverse changes in the securities markets; changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements; our ability to enter new markets successfully and capitalize on growth opportunities; our ability to successfully integrate acquired entities, if any; changes in consumer spending, borrowing and savings habits; changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board; changes in our organization, compensation and benefit plans; changes in our financial condition or results of operations that reduce capital available to pay dividends; and changes in the financial condition or future prospects of issuers of securities that we own, which could cause our actual results and experience to differ from the anticipated results and expectations, expressed in such forward-looking statements.

First Quarter Ended 2016 Financial Overview

First Guaranty Bancshares, Inc. is a Louisiana corporation and a bank holding company headquartered in Hammond, Louisiana. First Guaranty Bank, the wholly-owned subsidiary of First Guaranty Bancshares, Inc., is a Louisiana chartered commercial bank that provides personalized commercial banking services primarily to Louisiana customers through 21 banking facilities primary located throughout Southeast, Southwest and North Louisiana. We emphasize personal relationships and localized decision making to ensure that products and services are matched to customer needs. First Guaranty competes for business principally on the basis of personal service to customers, customer access to officers and directors and competitive interest rates and fees.

Financial highlights for the first quarter ended March 31, 2016 are as follows:

●	Total assets were $1.5 billion at March 31, 2016 and December 31, 2015. Total deposits were $1.3 billion at March 31, 2016 and December 31, 2015. Total loans were $854.8 million at March 31, 2016, an increase of $13.2 million, or 1.6%, compared with December 31, 2015. Shareholders’ equity was $123.3 million and $118.2 million at March 31, 2016 and December 31, 2015, respectively.

●	Net income for the first quarter of 2016 and 2015 was $3.2 million and $3.4 million, respectively.

●	Net income available to common shareholders after preferred stock dividends was $3.2 million and $3.3 million for the first quarter of 2016 and 2015, respectively. Due to the redemption of First Guaranty's Series C preferred stock from the U.S. Treasury Department Small Business Lending Fund on December 22, 2015, preferred dividends were discontinued.

●	Earnings per common share were $0.41 and $0.48 for the first quarter of 2016 and 2015, respectively.

●	Net interest income for the first quarter of 2016 was $11.8 million compared to $11.9 million for the same period in 2015.

●	The provision for loan losses for the first quarter of 2016 was $0.8 million compared to $0.6 million for the same period in 2015. The increase in provision for 2016 compared to 2015 was principally due to a charged-off overdrawn deposit account in the amount of $0.2 million that occurred in the first quarter of 2016.

●	The net interest margin for the first three months of 2016 was 3.30% which was an increase of ten basis points from the net interest margin of 3.20% for the first three months of 2015. First Guaranty attributed the improvement in the net interest margin to the continued shift in interest earning asset balances from lower yielding securities to higher yielding loans. Loans as a percentage of average interest earning assets increased to 58% at March 31, 2016 compared to 53% at March 31, 2015.

●	Investment securities totaled $556.8 million at March 31, 2016, an increase of $10.6 million when compared to $546.1 million at December 31, 2015. At March 31, 2016, available for sale securities, at fair value, totaled $407.5 million, an increase of $31.1 million when compared to $376.4 million at December 31, 2015. At March 31, 2016, held to maturity securities, at amortized cost, totaled $149.2 million, a decrease of $20.5 million when compared to $169.8 million at December 31, 2015. The increase in investment securities was due to seasonal increases in public fund deposits which required investment securities for collateral pledging.

●	Total loans net of unearned income were $854.8 million at March 31, 2016 compared to $841.6 million at December 31, 2015. The net loan portfolio at March 31, 2016 totaled $845.4 million, a net increase of $13.2 million from the December 31, 2015 net loan portfolio balance of $832.2 million. Total loans net of unearned income are reduced by the allowance for loan losses which totaled $9.4 million at March 31, 2016 and December 31, 2015.

●	Total impaired loans increased $7.5 million to $33.3 million at March 31, 2016 compared to $25.8 million at December 31, 2015.

●	Nonaccrual loans increased $4.4 million to $24.4 million at March 31, 2016 compared to $20.0 million at December 31, 2015.

●	Return on average assets for the three months ended March 31, 2016 and March 31, 2015 was 0.86% and 0.89%, respectively. Return on average common equity for the three months ended March 31, 2016 and 2015 was 10.46% and 12.82%, respectively. Return on average assets is calculated by dividing annualized net income before preferred dividends by average assets. Return on average common equity is calculated by dividing net income available to common shareholders by average common equity.

●	Book value per common share was $16.20 as of March 31, 2016 compared to $15.42 as of March 31, 2015. The increase in book value was due to the changes in accumulated other comprehensive income/loss (“AOCI”) and an increase in retained earnings. Our AOCI is comprised of unrealized gains and losses on available for sale securities.

●	First Guaranty's Board of Directors declared cash dividends of $0.16 and $0.15 per common share in the first quarter of 2016 and 2015, respectively. First Guaranty has paid 91 consecutive quarterly dividends as of March 31, 2016.

Financial Condition

Changes in Financial Condition from December 31, 2015 to March 31, 2016

General .

Total assets at March 31, 2016 were $1.5 billion, an increase of $9.2 million, or 0.6%, from December 31, 2015. Assets increased primarily due to an increase in net loans of $13.2 million and investment securities of $10.6 million, partially offset by a decrease in cash and cash equivalents of $11.5 million during the three months ended March 31, 2016.

Loans.

Net loans increased $13.2 million, or 1.6%, to $845.4 million at March 31, 2016 from $832.2 million at December 31, 2015. Net loans increased during the first three months of 2016 primarily due to a $13.7 million increase in construction and land development loans, a $9.9 million increase in non-farm non-residential loans, a $5.8 million increase in consumer and other loans, a $4.4 million increase in farmland loans, and a $1.9 million increase in one-to-four family residential loans, partially offset by a decrease of $18.0 million in commercial and industrial loans. Construction and land development loans increased principally due to the funding of unfunded commitments on various construction projects. Non-farm non-residential loan balances increased due to local originations and the purchase of commercial real estate loans. Consumer and other loans increased due to the continued growth in our commercial lease originations. Farmland loans increased due to seasonal fundings on agricultural loan commitments. One-to-four-family residential loans increased primarily due to an increase in local loan originations and the purchase of conforming one-to four-family residential loans. Commercial and industrial loans decreased primarily due to paydowns in our small business loans. First Guaranty had approximately 2.9% of funded and 1.3% of unfunded commitments in our loan portfolio to businesses engaged in support or service activities for oil and gas operations. Syndicated loans decreased from $105.9 million at December 31, 2015 to $102.5 million at March 31, 2016.

As of March 31, 2016, 66.2% of our loan portfolio was secured primarily by real estate. There are no significant concentrations of credit to any individual borrower. The largest portion of our loan portfolio, at 38.9% as of March 31, 2016, was non-farm non-residential loans secured by real estate. Approximately 38.4% of the loan portfolio is based on a floating rate tied to the prime rate or LIBOR as of March 31, 2016. 82.4% of the loan portfolio is scheduled to mature within 5 years from March 31, 2016.

Net loa ns are reduced by the allowance for loan losses which totaled $9.4 million at March 31, 2016 and December 31, 2015. Loan charge-offs increased to $1.3 million during the first three months of 2016 from $0.4 million during the same period in 2015. Recoveries totaled $0.4 million during the first three months of 2016 and $0.1 million during the same period in 2015. See Note 4 of the Notes to Consolidated Financial Statements for more information on loans and Note 5 for information on the allowance for loan losses.

Investment Securities.

Investment securities at March 31, 2016 totaled $556.8 million, an increase of $10.6 million compared to $546.1 million at December 31, 2015. The increase was primarily attributed to the purchase of U.S. government agencies and corporate bonds. The investment portfolio consisted of available-for-sale securities at fair market value for a total of $407.5 million at March 31, 2016 and held-to-maturity securities at amortized cost of $149.2 million at March 31, 2016.

Our investment securities portfolio is comprised of both available-for-sale securities and securities that we intend to hold to maturity. We purchase securities for our investment portfolio to provide a source of liquidity, to provide an appropriate return on funds invested, to manage interest rate risk and to meet pledging requirements for public funds and borrowings.

The securities portfolio consists principally of U.S. Government and Government agency securities, agency mortgage-backed securities, corporate debt securities and municipal bonds. U.S. government agencies consist of FHLB, FFCB, Freddie Mac, and Fannie Mae obligations. The mortgage backed securities that we purchased were issued by Freddie Mac and Fannie Mae. The securities portfolio provides First Guaranty with a balance to credit risk when compared to other categories of assets. Management monitors the securities portfolio for both credit and interest rate risk. First Guaranty generally limits the purchase of corporate securities to individual issuers to manage concentration and credit risk. Corporate securities generally have a maturity of 10 years or less. U.S. Government securities consist of U.S. Treasury bills that have maturities of less than 30 days. Municipal securities usually have maturities of 15 years or less. Government agency securities generally have maturities of 15 years or less. Agency mortgage backed securities have stated final maturities of 15 to 20 years.

Our available-for-sale securities portfolio totaled $407.5 million at March 31, 2016, an increase of $31.1 million, or 8.27%, compared to $376.4 million at December 31, 2015. The increase was primarily due to the purchase of agency securities that were used to collateralize public funds deposits.

Our held-to-maturity securities portfolio had an amortized cost of $149.2 million at March 31, 2016, a decrease of $20.5 million, or 12.1%, compared to $169.8 million at December 31, 2015. The decrease was due to the early payoffs of existing securities and the continued amortization of our mortgage-backed securities.

At March 31, 2016, $17.0 million, or 3.1%, of the securities portfolio was scheduled to mature in less than one year. $151.2 million, or 27.1%, of the securities portfolio is scheduled to mature between one and five years. Securities, not including mortgage backed securities, with contractual maturity dates over 10 years totaled $39.1 million, or 7.0%, of the total portfolio at March 31, 2016. The average maturity of the securities portfolio is affected by call options that may be exercised by the issuer of the securities and are influenced by market interest rates. Prepayments of mortgages that collateralize mortgage-backed securities also affect the maturity of the securities portfolio. Based on internal forecasts as of March 31, 2016, management believes that the securities portfolio has a forecasted weighted average life of approximately 3.1 years based on the current interest rate environment. A parallel interest rate shock of 400 basis points is forecasted to increase the weighted average life of the portfolio to approximately 5.6 years. The portfolio had an estimated effective duration of 3.0 years at March 31, 2016.

There was no credit related other-than-temporary impairment of securities in the three months ended March 31, 2016 or March 31, 2015.

Nonperforming Assets .

Non-performing assets consist of non-performing loans and other real-estate owned. Non-performing loans (including nonaccruing troubled debt restructurings described below) are those on which the accrual of interest has stopped or loans which are contractually 90 days past due on which interest continues to accrue. Loans are ordinarily placed on nonaccrual status when principal and interest is delinquent for 90 days or more . However, management may elect to continue the accrual when the asset is well secured and in the process of collection. It is our policy to discontinue the accrual of interest income on any loan for which we have reasonable doubt as to the payment of interest or principal. When a loan is placed on nonaccrual status, unpaid interest credited to income is reversed. Nonaccrual loans are returned to accrual status when the financial position of the borrower indicates there is no longer any reasonable doubt as to the payment of principal or interest and a reasonable payment performance period is observed (generally considered six months or longer). Other real estate owned consists of property acquired through formal foreclosure, in-substance foreclosure or by deed in lieu of foreclosure.

The table below sets forth the amounts and categories of our nonperforming assets at the dates indicated.

(in thousands)	March 31, 2016			December 31, 2015
Nonaccrual loans:
Real Estate:
Construction and land development	$	555		$	558
Farmland		118			117
1 - 4 family residential		4,749			4,538
Multifamily		5,262			9,045
Non-farm non-residential		1,935			2,934
Total Real Estate		12,619			17,192
Non-Real Estate:
Agricultural		3,537			2,628
Commercial and industrial		8,266			48
Consumer and other		-			171
Total Non-Real Estate		11,803			2,847
Total nonaccrual loans		24,422			20,039

Loans 90 days and greater delinquent & accruing:
Real Estate:
Construction and land development		-			-
Farmland		-			19
1 - 4 family residential		216			391
Multifamily		-			-
Non-farm non-residential		129			-
Total Real Estate		345			410
Non-Real Estate:
Agricultural		-			-
Commercial and industrial		-			-
Consumer and other		-			-
Total Non-Real Estate		-			-
Total loans 90 days and greater delinquent & accruing		345			410

Total non-performing loans		24,767			20,449

Real Estate Owned:
Real Estate Loans:
Construction and land development		25			25
Farmland		-			-
1 - 4 family residential		564			880
Multifamily		-			-
Non-farm non-residential		637			672
Total Real Estate		1,226			1,577
Non-Real Estate Loans:
Agricultural		-			-
Commercial and industrial		-			-
Consumer and other		-			-
Total Non-Real Estate		-			-
Total Real Estate Owned		1,226			1,577

Total non-performing assets	$	25,993		$	22,026

Non-performing assets to total loans		3.04	%		2.62	%
Non-performing assets to total assets		1.77	%		1.51	%
Non-performing loans to total loans		2.90	%		2.43	%

At March 31, 2016, nonperforming assets totaled $26.0 million, or 1.77% of total assets, compared to $22.0 million, or 1.51%, of total assets at December 31, 2015, which represented an increase of $4.0 million or 18.0%. The increase in non-performing assets occurred primarily as a result of an increase in non-accrual loans from $20.0 million at December 31, 2015 to $24.4 million at March 31, 2016. The increase in non-performing assets was concentrated in commercial and industrial loans. This increase was partially offset by a decrease in other real estate owned of $0.4 million to $1.2 million at March 31, 2016.

At March 31, 2016 nonaccrual loans totaled $24.4 million, an increase of $4.4 million or 21.9% compared to nonaccrual loans of $20.0 million at December 31, 2015. The increase in non-accrual loans was primarily associated with the decision to transfer a $7.9 million syndicate loan that provides services to the oil and gas industry to non-accrual status as of March 31, 2016. This increase to non-accrual loans was partially offset by the return to accrual status of a $2.8 million loan secured by a multi-family real estate property; a payoff of a $0.9 million non-accrual multi-family loan; and the sale of a $1.8 million non-accrual loan secured by a hotel property. Nonaccrual loans were concentrated in three loan relationships that totaled $14.9 million or 61.1% of nonaccrual loans at March 31, 2016.

At March 31, 2016 loans 90 days or greater delinquent and still accruing totaled $0.3 million compared to $0.4 million at December 31, 2015, a decrease of $0.1 million.

Other real estate owned at March 31, 2016 totaled $1.2 million, a decrease of $0.4 million from $1.6 million at December 31, 2015. The decrease in other real estate owned was due to write-downs of $75,000 and sales of $0.3 million, primarily related to residential properties.

At March 31, 2016, our largest non-performing assets were comprised of the following non-accrual loans: (1) a commercial and industrial loan that totaled $7.9 million; (2) a multi-family real estate loan with a balance of $5.3 million secured by commercial property; and (3) a lending relationship secured with three one-to-four family residential loans that in aggregate total $1.7 million.

Troubled Debt Restructurings .

Another category of assets which contribute to our credit risk is troubled debt restructurings (“TDRs”). A TDR is a loan for which a concession has been granted to the borrower due to a deterioration of the borrower’s financial condition. Such concessions may include reduction in interest rates, deferral of interest or principal payments, principal forgiveness and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. We strive to identify borrowers in financial difficulty early and work with them to modify to more affordable terms before such loan reaches nonaccrual status. In evaluating whether to restructure a loan, management analyzes the long-term financial condition of the borrower, including guarantor and collateral support, to determine whether the proposed concessions will increase the likelihood of repayment of principal and interest. TDRs that are not performing in accordance with their restructured terms and are either contractually 90 days past due or placed on nonaccrual status are reported as non-performing loans. Our policy provides that nonaccrual TDRs are returned to accrual status after a period of satisfactory and reasonable future payment performance under the terms of the restructuring. Satisfactory payment performance is generally no less than six consecutive months of timely payments and demonstrated ability to continue to repay.

The following is a summary of loans restructured as TDRs at March 31, 2016 and December 31, 2015:

(in thousands)	March 31, 2016		December 31, 2015
Restructured Loans:
In Compliance with Modified Terms	$	2,981	$	3,431
Past Due 30 through 89 days and still accruing		-		-
Past Due 90 days and greater and still accruing		-		-
Nonaccrual		365		368
Restructured Loans that subsequently defaulted		206		1,908
Total Restructured Loans	$	3,552	$	5,707

At March 31, 2016, we had three outstanding TDRs: (1) a $2.9 million non-farm non-residential loan secured by commercial real estate, which is performing in accordance with its modified terms; (2) a $0.4 million construction and land development loan secured by raw land that is on non-accrual; (3) a $0.2 million loan secured by commercial real estate that subsequently defaulted and is on non-accrual. The restructuring of these loans was related to interest rate or amortization concessions. The decline in TDRs occurred due to two credit relationships in the amount of $2.1 million that had returned to market terms and been in compliance with their modified terms for 12 months.

Allowance for Loan Losses.

The allowance for loan losses is maintained to absorb potential losses in the loan portfolio. The allowance is increased by the provision for loan losses, offset by recoveries of previously charged-off loans and is decreased by loan charge-offs. The provision is a charge to current expense to provide for current loan losses and to maintain the allowance commensurate with management’s evaluation of the risks inherent in the loan portfolio. Various factors are taken into consideration when determining the amount of the provision and the adequacy of the allowance. These factors include but are not limited to:

●

past due and non-performing assets;

●

specific internal analysis of loans requiring special attention;

●

the current level of regulatory classified and criticized assets and the associated risk factors with each;

●

changes in underwriting standards or lending procedures and policies;

●

charge-off and recovery practices;

●

national and local economic and business conditions;

●

nature and volume of loans;

●

overall portfolio quality;

●

adequacy of loan collateral;

●

quality of loan review system and degree of oversight by our board of directors;

●

competition and legal and regulatory requirements on borrowers;

●

examinations of the loan portfolio by federal and state regulatory agencies and examinations; and

●

review by our internal loan review department and independent accountants.

The data collected from all sources in determining the adequacy of the allowance is evaluated on a regular basis by management with regard to current national and local economic trends, prior loss history, underlying collateral values, credit concentrations and industry risks. An estimate of potential loss on specific loans is developed in conjunction with an overall risk evaluation of the total loan portfolio. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as new information becomes available.

The allowance consists of specific, general, and unallocated components. The specific component relates to loans that are classified as doubtful, substandard, and impaired. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. Also, a specific reserve is allocated for our syndicated loans, including shared national credits. The general component covers non-classified loans and special mention loans and is based on historical loss experience for the past three years adjusted for qualitative factors described above. An unallocated component is maintained to cover uncertainties that could affect the estimate of probable losses.

The balance in the allowance for loan losses is principally influenced by the provision for loan losses and by net loan loss experience. Additions to the allowance are charged to the provision for loan losses. Losses are charged to the allowance as incurred and recoveries on losses previously charged to the allowance are credited to the allowance at the time recovery is collected.

The allowance for losses was $9.4 million or 1.11% of total loans and 38.0% of nonperforming loans at March 31, 2016.

Comparing March 31, 2016 to December 31, 2015, the total allowance balance remained stable. There were changes within the specific components of the allowance balance. The primary changes were an increase in the balance associated with commercial and industrial loans while the balance associated with real estate secured loans declined. The reasons for these changes were due to the $7.9 million commercial and industrial loan mentioned above that was determined to be impaired and the reduction in real estate secured impaired loans due to the previously mentioned payoffs and upgrades of impaired real estate loans. Special mention loans remained relatively constant from December 31, 2015 to March 31, 2016. Substandard loans declined by $4.6 million during the first quarter of 2016, due primarily to payoffs or sales of loans.

First Guaranty charged off $1.3 million in loan balances during the first three months of 2016. The charged-off loan balance was concentrated in one loan relationship on a non-farm non-residential real estate loan which totaled $0.6 million or 46.0% of the total charged off amount.

The provision for loan losses increased to $0.8 million in the first three months of 2016 from $0.6 million for the same period in 2015, principally due to a charged-off overdrawn deposit account of $0.2 million. The provisions made in the first three months of 2016 were taken to provide for current loan and deposit losses and to maintain the allowance proportionate to risks inherent in the loan portfolio. Total charge-offs were $1.3 million for the first three months of 2016 as compared to $0.4 million for the same period in 2015. Recoveries totaled $0.4 million during the first three months of 2016 and $0.1 million during the first three months of 2015. For more information, see Note 5 to Consolidated Financial Statements.

Other information related to the allowance for loan losses are as follows:

(in thousands)	March 31, 2016			March 31, 2015
Loans:
Average outstanding balance	$	835,950		$	797,138
Balance at end of period	$	854,776		$	796,172

Allowance for Loan Losses:
Balance at beginning of year	$	9,415		$	9,105
Charge-offs		(1,273	)		(418	)
Recoveries		430			117
Provision		843			610
Balance at end of period	$	9,415		$	9,414

Deposits .

Managing the mix and pricing the maturities of deposit liabilities is an important factor affecting our ability to maximize our net interest margin. The strategies used to manage interest-bearing deposit liabilities are designed to adjust as the interest rate environment changes. We regularly assess our funding needs, deposit pricing and interest rate outlooks. From December 31, 2015 to March 31, 2016, total deposits increased $4.9 million, or 0.4%, to $1.3 billion. Noninterest-bearing demand deposits increased $8.7 million from December 31, 2015 to March 31, 2016. Interest-bearing demand deposits increased $8.7 million from December 31, 2015 to March 31, 2016 . Time deposits decreased $17.4 million, or 2.9%, to $574.6 million at March 31, 2016 compared to $592.0 million at December 31, 2015. At March 31, 2016, we had $21.7 million in brokered deposits. As we seek to strengthen our net interest margin and improve our earnings, attracting noninterest-bearing deposits will be a primary emphasis. Management will continue to evaluate and update our product mix in its efforts to attract additional customers. We currently offer a number of deposit products that are competitively priced and designed to attract and retain customers with primary emphasis on noninterest-bearing deposits.

As of March 31, 2016 , the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $413.2 million . At March 31, 2016, approximately $176.1 million of First Guaranty's certificates of deposit had a remaining term greater than one year.

The following table compares deposit categories for the periods indicated.

Total Deposits	For the Three Months Ended March 31,						For the Years Ended December 31,
	2016						2015						2014
(in thousands except for %)	Average Balance		Percent		Weighted Average Rate		Average Balance		Percent		Weighted Average Rate		Average Balance		Percent		Weighted Average Rate
Noninterest-bearing Demand	$	208,963	15.9	%	0.0	%	$	211,584	15.9	%	0.0	%	$	200,127	15.3	%	0.0	%
Interest-bearing Demand		425,283	32.5	%	0.6	%		401,617	30.2	%	0.4	%		386,363	29.6	%	0.3	%
Savings		84,341	6.4	%	0.1	%		77,726	5.8	%	0.0	%		69,719	5.4	%	0.0	%
Time		591,981	45.2	%	1.1	%		640,134	48.1	%	1.1	%		649,165	49.7	%	1.2	%
Total Deposits	$	1,310,568	100.0	%	0.7	%	$	1,331,061	100.0	%	0.6	%	$	1,305,374	100.0	%	0.8	%

Individual and Business Deposits	For the Three Months Ended March 31,						For the Years Ended December 31,
	2016						2015						2014
(in thousands except for %)	Average Balance		Percent		Weighted Average Rate		Average Balance		Percent		Weighted Average Rate		Average Balance		Percent		Weighted Average Rate
Noninterest-bearing Demand	$	202,886	28.2	%	0.0	%	$	207,334	27.6	%	0.0	%	$	197,332	25.3	%	0.0	%
Interest-bearing Demand		116,873	16.3	%	0.3	%		112,864	15.0	%	0.2	%		105,569	13.5	%	0.2	%
Savings		69,372	9.6	%	0.1	%		65,775	8.7	%	0.1	%		61,288	7.9	%	0.0	%
Time		330,183	45.9	%	1.3	%		366,244	48.7	%	1.4	%		414,975	53.3	%	1.4	%
Total Deposits	$	719,314	100.0	%	0.6	%	$	752,217	100.0	%	0.7	%	$	779,164	100.0	%	0.8	%

Public Fund Deposits	For the Three Months Ended March 31,						For the Years Ended December 31,
	2016						2016						2015
(in thousands except for %)	Average Balance		Percent		Weighted Average Rate		Average Balance		Percent		Weighted Average Rate		Average Balance		Percent		Weighted Average Rate
Noninterest-bearing Demand	$	6,077	1.0	%	0.0	%	$	4,250	0.7	%	0.0	%	$	2,795	0.5	%	0.0	%
Interest-bearing Demand		308,410	52.2	%	0.7	%		288,753	49.9	%	0.4	%		280,794	53.4	%	0.4	%
Savings		14,969	2.5	%	0.3	%		11,951	2.1	%	0.0	%		8,431	1.6	%	0.0	%
Time		261,798	44.3	%	0.8	%		273,890	47.3	%	0.7	%		234,190	44.5	%	0.7	%
Total Deposits	$	591,254	100.0	%	0.7	%	$	578,844	100.0	%	0.5	%	$	526,210	100.0	%	0.5	%

The following table sets forth the distribution of our time deposit accounts.

( in thousands)	March 31, 2016
Time deposits of less than $100,000	$	161,433
Time deposits of $100,000 through $250,000		114,815
Time deposits of more than $250,000		298,380
Total Time Deposits	$	574,628

At March 31, 2016, public funds deposits totaled $581.0 million compared to $568.7 million at December 31, 2015. Public fund time deposits totaled $253.2 million at March 31, 2016 compared to $252.7 million at December 31, 2015. We have developed a program for the retention and management of public funds deposits. Since 2012, we have maintained public funds deposits in excess of $400.0 million. These deposits are from local government entities such as school districts, hospital districts, sheriff departments and other municipalities. $472.9 million , or 81%, of these accounts at March 31, 2016, are under contracts with terms of three years or less. Three of these relationships account for 38 % of our total public funds deposits, each of which is currently under contract with us. These deposits generally have stable balances as we maintain both operating accounts and time deposits for these entities. There is a seasonal component to public deposit levels associated with annual tax collections. Public funds will increase at the end of the year and during the first quarter. Public funds generally decline in the second and third quarters. Public funds deposit accounts are collateralized by FHLB letters of credit, by Louisiana municipal bonds and by eligible government and government agency securities such as those issued by the FHLB, FFCB, Fannie Mae, and Freddie Mac. We invest the majority of these public deposits in our investment portfolio, but have increasingly invested more public funds into loans during the last three years.

The following table sets forth public funds as a percent of total deposits .

(in thousands except for %)	March 31, 2016			December 31, 2015			December 31, 2014			December 31, 2013			December 31, 2012
Public Funds:
Noninterest-bearing Demand	$	6,507		$	4,906		$	3,241		$	3,016		$	3,735
Interest-bearing Demand		306,220			296,416			321,382			296,739			265,296
Savings		15,066			14,667			10,142			7,209			6,415
Time		253,205			252,688			266,743			208,614			195,052
Total Public Funds	$	580,998		$	568,677		$	601,508		$	515,578		$	470,498
Total Deposits	$	1,300,727		$	1,295,870		$	1,371,839		$	1,303,099		$	1,252,612
Total Public Funds as a percent of Total Deposits		44.7	%		43.9	%		43.9	%		39.6	%		37.6	%

Borrowings .

First Guaranty maintains borrowing relationships with other financial institutions as well as the Federal Home Loan Bank on a short and long-term basis to meet liquidity needs. S hort-term borrowings totaled $0 at March 31, 2016 and $1.8 million at December 31, 2015. Short-term borrowings consisted of a line of credit of $2.5 million, with no outstanding balance at March 31, 2016. First Guaranty had senior long-term debt totaling $25.1 million as of March 31, 2016 and $25.8 million at December 31, 2015.

First Guaranty also had junior subordinated debentures totaling $14.6 million at March 31, 2016 and December 31, 2015.

At March 31, 2016, First Guaranty had $195.6 million in Federal Home Loan Bank letters of credit outstanding obtained primarily for collateralizing public deposits.

Total Shareholders' Equity.

Total shareholders' equity increased to $123.3 million at March 31, 2016 from $118.2 million at December 31, 2015. The increase in shareholders' equity was principally the result of a $3.1 million increase in accumulated other comprehensive income and an increase in retained earnings of $1.9 million. The $1.9 million increase in retained earnings was due to net income of $3.2 million during the three month period ended March 31, 2016, partially offset by $1.2 million in cash dividends paid on our common stock.

Results of Operations for the First Quarter Ended March 31, 2016 and 2015

Performance Summary

Net income for the three months ended March 31, 2016 was $3.2 million, a decrease of $0.2 million, or 7.2%, from $3.4 million for the three months ended March 31, 2015. Net income available to common shareholders for the three months ended March 31, 2016 was $3.2 million which was a decrease of $0.1 million from $3.3 million for the same period in 2015. The decrease in net income for the three months ended March 31, 2016 was primarily the result of increased interest expense associated with borrowings, increased noninterest expense, and an increase in the provision for loan losses, partially offset by increased interest income and noninterest income. Earnings per common share for the three months ended March 31, 2016 was $0.41 per common share, a decrease of 14.6% or $0.07 per common share from $0.48 per common share for the three months ended March 31, 2015.

Net I nterest Income

Our operating results depend primarily on our net interest income, which is the difference between interest income earned on interest-earning assets, including loans and securities, and interest expense incurred on interest-bearing liabilities, including deposits and other borrowed funds. Interest rate fluctuations, as well as changes in the amount and type of interest-earning assets and interest-bearing liabilities, combine to affect net interest income. Our net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities. It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds.

A financial institution’s asset and liability structure is substantially different from that of a non-financial company, in that virtually all assets and liabilities are monetary in nature. Accordingly, changes in interest rates may have a significant impact on a financial institution’s performance. The impact of interest rate changes depends on the sensitivity to the change of our interest-earning assets and interest-bearing liabilities. The effects of the low interest rate environment in recent years and our interest sensitivity position is discussed below.

Net interest income for the three months ended March 31, 2016 and 2015 was $11.8 million and $11.9 million, respectively. The decrease in net interest income for the three months ended March 31, 2016 was primarily due to an increase in the average rate of our total interest-bearing liabilities offset by the increase in the average yield of our total interest-earning assets. For the three months ended March 31, 2016, the average balance of our total interest-earning assets decreased by $63.5 million to $1.4 billion, and the average yield of interest-earning assets increased by twenty-two basis points to 4.02% from 3.80% for the three months ended March 31, 2015. The average rate of our total interest-bearing liabilities increased by fourteen basis points to 0.91% for the three months ended March 31, 2016 compared to 0.77% for the three months ended March 31, 2015. The average balance of our interest-bearing liabilities decreased $41.7 million to $1.1 billion for the three months ended March 31, 2016. As a result, our net interest rate spread increased eight basis points to 3.11% for the three months ended March 31, 2016 from 3.03% for the three months ended March 31, 2015. Our net interest margin also increased ten basis points to 3.30% for the three months ended March 31, 2016 from 3.20% for the three months ended March 31, 2015.

Interest Income

Interest income increased $0.3 million, or 2.2%, to $14.4 million for the three months ended March 31, 2016. The increase in interest income resulted primarily from an increase in the average yield of interest-earning assets by twenty-two basis points to 4.02% for the three months ended March 31, 2016 compared to 3.80% for the three months ended March 31, 2015. This increase was partially offset by a $63.5 million decrease of the average balance of our interest-earnings assets to $1.4 billion for the three months ended March 31, 2016.

In terest income on securities increased $0.2 million, or 7.3%, to $3.6 million for the three months ended March 31, 2016 primarily as a result of an increase in the average yield of securities. The average yield on securities increased by forty-eight basis points to 2.50% for the three months ended March 31, 2016 from 2.02% for the three months ended March 31, 2015. The average balance of securities decreased $95.4 million to $576.4 million for the three months ended March 31, 2016 from $671.8 million for the three months ended March 31, 2015 due to a decrease in the average balance of our agency securities.

Interest income on loans increased $62,000, or 0.6%, to $10.8 million for the three months ended March 31, 2016 as a result of an increase in the average balance of loans, partially offset by a decrease in the average yield on loans. The average balance of loans increased by $38.8 million to $836.0 million for the three months ended March 31, 2016 from $797.1 million for the three months ended March 31, 2015 as a result of new loan originations, the majority of which were one-to-four family residential loans, the origination of commercial leases, commercial real estate loans and commercial and industrial loans. Partially offsetting the increase in the average balance of loans was a decrease in the average yield on loans, which decreased by twenty-six basis points to 5.20% for the three months ended March 31, 2016 from 5.46% for the three months ended March 31, 2015 due to pay-offs of higher-yielding existing loans and charged-off interest associated with non-accrual loans.

Interest Expense

Interest expense increased $0.4 million, or 15.3%, to $2.6 million for the three months ended March 31, 2016 from $2.2 million for the three months ended March 31, 2015 due to increases in the average rate on deposits offset by the decrease of the average balance of deposits. Interest expense also increased due to the origination of a senior secured loan and the junior subordinated debt used to redeem the SBLF preferred stock at the end of 2015. The approximate increase in interest expense due to these borrowings was $0.4 million for the first quarter of 2016. The average rate of time deposits decreased by six basis points during the three months ended March 31, 2016 to 1.06%, reflecting downward repricing of our time deposits in the continued low interest rate environment. The decrease was offset by an increase in the average rate of interest-bearing demand deposits of twenty-five basis points during the three months ended March 31, 2016 to 0.58%. The average balance of interest-bearing deposits decreased by $79.1 million during the three months ended March 31, 2016 to $1.1 billion as a result of a $88.4 million decrease in the average balance of time deposits and interest-bearing demand deposits that was partially offset by $9.3 million increase in the average balance savings deposits.

The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. Loans, net of unearned income, include loans held for sale. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

The net interest income yield shown below in the average balance sheet is calculated by dividing net interest income by average interest-earning assets and is a measure of the efficiency of the earnings from balance sheet activities. It is affected by changes in the difference between interest on interest-earning assets and interest-bearing liabilities and the percentage of interest-earning assets funded by interest-bearing liabilities.

	Three Months Ended March 31, 2016						Three Months Ended March 31, 2015
( in thousands except for %)	Average Balance		Interest		Yield/Rate (5)		Average Balance		Interest		Yield/Rate (5)
Assets
Interest-earning assets:
Interest-earning deposits with banks	$	29,339	$	30	0.41	%	$	36,246	$	20	0.23	%
Securities (including FHLB stock)		576,423		3,589	2.50	%		671,821		3,345	2.02	%
Federal funds sold		247		-	-	%		237		-	-	%
Loans held for sale		-		-	-	%		-		-	-	%
Loans, net of unearned income		835,950		10,801	5.20	%		797,138		10,739	5.46	%
Total interest-earning assets		1,441,959	$	14,420	4.02	%		1,505,442	$	14,104	3.80	%

Noninterest-earning assets:
Cash and due from banks		7,997						8,605
Premises and equipment, net		22,240						19,278
Other assets		4,797						6,128
Total Assets	$	1,476,993					$	1,539,453

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand deposits	$	425,283	$	614	0.58	%	$	440,585	$	358	0.33	%
Savings deposits		84,341		18	0.09	%		75,039		9	0.05	%
Time deposits		591,981		1,564	1.06	%		665,121		1,843	1.12	%
Borrowings		41,638		392	3.79	%		4,163		34	3.37	%
Total interest-bearing liabilities		1,143,243	$	2,588	0.91	%		1,184,908	$	2,244	0.77	%

Noninterest-bearing liabilities:
Demand deposits		208,963						205,705
Other		3,588						5,207
Total Liabilities		1,355,794						1,395,820

Shareholders' equity		121,199						143,633
Total Liabilities and Shareholders' Equity	$	1,476,993					$	1,539,453
Net interest income			$	11,832					$	11,860

Net interest rate spread (1)					3.11	%					3.03	%
Net interest-earning assets (2)	$	298,716					$	320,534
Net interest margin (3), (4)					3.30	%					3.20	%

Average interest-earning assets to interest-bearing liabilities					126.13	%					127.05	%

(1)	Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(2)	Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
(3)	Net interest margin represents net interest income divided by average total interest-earning assets.
(4)	The tax adjusted net interest margin was 3.33% and 3.22% for the above periods ended March 31, 2016 and 2015 respectively. A 35% tax rate was used to calculate the effect on securities income from tax exempt securities.
(5)	Annualized.

Provision for Loan Losses.

A provision for loan losses is a charge to income in an amount that management believes is necessary to maintain an adequate allowance for loan losses. The provision is based on management’s regular evaluation of current economic conditions in our specific markets as well as regionally and nationally, changes in the character and size of the loan portfolio, underlying collateral values securing loans, and other factors which deserve recognition in estimating loan losses. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change.

For the three months ended March 31, 2016, the provision for loan losses was $0.8 million compared to $0.6 million for the same period in 2015. The allowance for loan losses at March 31, 2016 was $9.4 million and was 1.10% of total loans. The increase in the provision was principally due to growth in loans and to account for specific charge-offs concentrated in the loan relationships and overdrawn deposit relationship described earlier.

We believe that the allowance is adequate to cover potential losses in the loan portfolio given the current economic conditions, and current expected net charge-offs and non-performing asset levels.

Noninterest Income.

Our primary sources of recurring noninterest income are customer service fees, loan fees, gains on the sales of loans and available-for-sale securities and other service fees. Noninterest income does not include loan origination fees which are recognized over the life of the related loan as an adjustment to yield using the interest method.

Noninterest income totaled $1.8 million for the three months ended March 31, 2016, an increase of $92,000 from $1.7 million for the three months ended March 31, 2015. The increase was primarily due to higher gains on securities sales. Net securities gains were $0.4 million for the three months ended March 31, 2016 as compared to $0.3 million for the same period in 2015. First Guaranty sold longer duration securities in the first quarter of 2016 in order to fund loan growth. We also continued to have gains from bonds that were called and paid off before their contractual maturity. Service charges, commissions and fees totaled $0.7 million for the three months ended March 31, 2016 and $0.6 million for the same period in 2015. ATM and debit card fees totaled $0.4 million for the three months ended March 31, 2016 and 2015. Other noninterest income totaled $0.4 million for the three months ended March 31, 2016 and 2015.

Noninterest Expense.

Noninterest expense includes salaries and employee benefits, occupancy and equipment expense and other types of expenses. Noninterest expense totaled $8.1 million for the three months ended March 31, 2016 and $7.9 million for the three months ended March 31, 2015. Salaries and benefits expense totaled $4.1 million for the three months ended March 31, 2016 and $4.0 million for the three months ended March 31, 2015. Occupancy and equipment expense totaled $1.0 million for both the three months ended March 31, 2016 and 2015. Other noninterest expense totaled $3.0 million for the three months ended March 31, 2016, an increase of $0.2 million when compared to $2.9 million for the same period in 2015. The largest increase in noninterest expense occurred due to increased legal and professional fees.

The following table presents, for the periods indicated, the major categories of other noninterest expense:

	Three Months Ended March 31,
(in thousands)	2016		2015
Other noninterest expense:
Legal and professional fees	$	530	$	331
Data processing		324		332
Marketing and public relations		245		168
Taxes - sales, capital, and franchise		186		171
Operating supplies		120		94
Travel and lodging		154		196
Telephone		44		47
Amortization of core deposits		80		80
Donations		89		95
Net costs from other real estate and repossessions		137		143
Regulatory assessment		277		269
Other		844		938
Total other noninterest expense	$	3,030	$	2,864

Income Taxes.

The amount of income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income and the amount of other non-deductible expenses. The provision for income taxes for the three months ended March 31, 2016 and 2015 was $1.6 million and $1.7 million, respectively. The provision for income taxes decreased due to the decrease in income before taxes. First Guaranty’s statutory tax rate was 35.0% for the three months ended March 31, 2016, which was unchanged from the first quarter of 2015.

Liquidity and Capital Resources

Liquidity .

Liquidity refers to the ability or flexibility to manage future cash flows to meet the needs of depositors and borrowers and fund operations. Maintaining appropriate levels of liquidity allows us to have sufficient funds available to meet customer demand for loans, withdrawal of deposit balances and maturities of deposits and other liabilities. Liquid assets include cash and due from banks, interest-earning demand deposits with banks, federal funds sold and available for sale investment securities.

Loans maturing within one year or less at March 31, 2016 totaled $144.5 million. At March 31, 2016, time deposits maturing within one year or less totaled $398.5 million. First Guaranty’s held-to-maturity ("HTM") portfolio at March 31, 2016 was $149.2 million or 26.8% of the investment portfolio compared to $169.8 million or 31.1% at December 31, 2015. The securities in the HTM portfolio are used to collateralize public funds deposits and may also be used to secure borrowings with the Federal Home Loan Bank or Federal Reserve Bank. The agency securities in the HTM portfolio have maturities of 10 years or less. The mortgage backed securities have stated final maturities of 15 to 20 years at March 31, 2016. The HTM portfolio had a forecasted weighted average life of approximately 3.6 years based on current interest rates. Management regularly monitors the size and composition of the HTM portfolio to evaluate its effect on First Guaranty’s liquidity. First Guaranty’s available-for-sale ("AFS") portfolio was $407.5 million or 73.2% of the investment portfolio as of March 31, 2016. The majority of the AFS portfolio was comprised of U.S. Government Agencies, municipal bonds and investment grade corporate bonds. Management believes these securities are readily marketable and enhance First Guaranty’s liquidity.

First Guaranty maintained a net borrowing capacity at the Federal Home Loan Bank totaling $115.4 million and $116.7 million at March 31, 2016 and December 31, 2015, respectively. First Guaranty also has a discount window line with the Federal Reserve Bank. We also maintain federal funds lines of credit at various correspondent banks with borrowing capacity of $70.5 million and a revolving line of credit for $2.5 million with an availability of $2.5 million as of March 31, 2016. Management believes there is sufficient liquidity to satisfy current operating needs.

Capital Resources.

First Guaranty's capital position is reflected in shareholders’ equity, subject to certain adjustments for regulatory purposes. Further, our capital base allows us to take advantage of business opportunities while maintaining the level of resources we deem appropriate to address business risks inherent in daily operations.

Total shareholders’ equity increased to $123.3 million at March 31, 2016 from $118.2 million at December 31, 2015. The increase in total shareholders’ equity was principally the result of an increase in retained earnings of $1.9 million and a $3.1 million increase in the balance of accumulated other comprehensive income from a $0.9 million loss at December 31, 2015 to a $2.2 million gain at March 31, 2016. The $1.9 million increase in retained earnings was due to net income of $3.2 million during the three month period ended March 31, 2016, partially offset by $1.2 million in cash dividends paid on our common stock.

Regulatory Capital .

Risk-based capital regulations adopted by the FDIC require banks to achieve and maintain specified ratios of capital to risk-weighted assets. Similar capital regulations apply to bank holding companies over $1.0 billion in assets. The risk-based capital rules are designed to measure “Tier 1” capital (consisting of common equity, retained earnings and a limited amount of qualifying perpetual preferred stock and trust preferred securities, net of goodwill and other intangible assets and accumulated other comprehensive income) and total capital in relation to the credit risk of both on- and off- balance sheet items. Under the guidelines, one of its risk weights is applied to the different on balance sheet items. Off-balance sheet items, such as loan commitments, are also subject to risk weighting. Applicable bank holding companies and all banks must maintain a minimum total capital to total risk weighted assets ratio of 8.00%, at least half of which must be in the form of core or Tier 1 capital. These guidelines also specify that bank holding companies that are experiencing internal growth or making acquisitions will be expected to maintain capital positions substantially above the minimum supervisory levels.

In order to avoid limitations on distributions, including dividend payments, and certain discretionary bonus payments to executive officers, an institution must hold a capital conservation buffer above its minimum risk-based capital requirements. As of March 31, 2016, the Bank's capital conservation buffer was 5.66% exceeding the minimum of 0.625% for 2016. As of March 31, 2016, the Company's capital conservation buffer was 4.83% exceeding the minimum of 0.625% for 2016.

At March 31, 2016, we satisfied the minimum regulatory capital requirements and were well capitalized within the meaning of federal regulatory requirements.

	"Well Capitalized Minimums"		As of March 31, 2016		As of December 31, 2015
Tier 1 Leverage Ratio
Consolidated	5.00	%	8.03	%	8.17	%
Bank	5.00	%	9.48	%	9.74	%

Tier 1 Risk-based Capital Ratio
Consolidated	8.00	%	10.83	%	10.85	%
Bank	8.00	%	12.80	%	12.98	%

Total Risk-based Capital Ratio
Consolidated	10.00	%	13.06	%	13.13	%
Bank	10.00	%	13.66	%	13.86	%

Common Equity Tier One Capital Ratio
Consolidated	6.50	%	10.83	%	10.85	%
Bank	6.50	%	12.80	%	12.98	%

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Asset/Liability Management and Market Risk

Our asset/liability management (ALM) process consists of quantifying, analyzing and controlling interest rate risk (IRR) to maintain reasonably stable net interest income levels under various interest rate environments. The principal objective of ALM is to maximize net interest income while operating within acceptable limits established for interest rate risk and to maintain adequate levels of liquidity.

The majority of our assets and liabilities are monetary in nature. Consequently, one of our most significant forms of market risk is interest rate risk, which is inherent in our lending and deposit-taking activities. Our assets, consisting primarily of loans secured by real estate and fixed rate securities in our investment portfolio, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage interest rate risk and reduce the exposure of our net interest income to changes in market interest rates. The board of directors of First Guaranty Bank has established two committees, the management asset liability committee and the board investment committee, to oversee the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors. The management asset liability committee is comprised of senior officers of the Bank and meets as needed to review our asset liability policies and interest rate risk position. The board ALCO investment committee is comprised of certain members of the board of directors of the Bank and meets monthly. The management asset liability committee provides a monthly report to the board ALCO investment committee.

The need for interest sensitivity gap management is most critical in times of rapid changes in overall interest rates. We generally seek to limit our exposure to interest rate fluctuations by maintaining a relatively balanced mix of rate sensitive assets and liabilities on a one-year time horizon and greater than one-year time horizon. Because of the significant impact on net interest margin from mismatches in repricing opportunities, we monitor the asset-liability mix periodically depending upon the management asset liability committee’s assessment of current business conditions and the interest rate outlook. We maintain exposure to interest rate fluctuations within prudent levels using varying investment strategies. These strategies include, but are not limited to, frequent internal modeling of asset and liability values and behavior due to changes in interest rates. We monitor cash flow forecasts closely and evaluate the impact of both prepayments and extension risk.

The following interest sensitivity analysis is one measurement of interest rate risk. This analysis, which we prepare monthly, reflects the contractual maturity characteristics of assets and liabilities over various time periods. This analysis does not factor in prepayments or interest rate floors on loans which may significantly change the report. This table includes nonaccrual loans in their respective maturity periods. The gap indicates whether more assets or liabilities are subject to repricing over a given time period. The interest sensitivity analysis at March 31, 2016 illustrated below reflects a liability-sensitive position with a negative cumulative gap on a one-year basis.

The interest spread and liability funding discussed below are directly related to changes in asset and liability mixes, volumes, maturities and repricing opportunities for interest-earning assets and interest-bearing liabilities. Interest-sensitive assets and liabilities are those which are subject to repricing in the near term, including both floating or adjustable rate instruments and instruments approaching maturity. The interest sensitivity gap is the difference between total interest-sensitive assets and total interest-sensitive liabilities. Interest rates on our various asset and liability categories do not respond uniformly to changing market conditions. Interest rate risk is the degree to which interest rate fluctuations in the marketplace can affect net interest income.

	March 31, 2016
	Interest Sensitivity Within
(in thousands except for %)	3 Months Or Less			Over 3 Months thru 12 Months			Total One Year			Over One Year		Total
Earning Assets:
Loans (including loans held for sale)	$	380,278		$	42,766		$	423,044		$	431,732	$	854,776
Securities (including FHLB stock)		14,251			4,100			18,351			539,709		558,060
Federal Funds Sold		221			-			221			-		221
Other earning assets		17,787			-			17,787			-		17,787
Total earning assets	$	412,537		$	46,866		$	459,403		$	971,441	$	1,430,844

Source of Funds:
Interest-bearing accounts:
Demand deposits	$	417,890		$	-		$	417,890		$	-	$	417,890
Savings deposits		86,312			-			86,312			-		86,312
Time deposits		214,501			183,993			398,494			176,134		574,628
Senior long-term debt		24,345			-			24,345			706		25,051
Junior subordinated debt		-			-			-			14,605		14,605
Noninterest-bearing, net		-			-			-			312,358		312,358
Total source of funds	$	743,048		$	183,993		$	927,041		$	503,803	$	1,430,844

Period gap	$	(330,511	)	$	(137,127	)	$	(467,638	)	$	467,638
Cumulative gap	$	(330,511	)	$	(467,638	)	$	(467,638	)	$	-

Cumulative gap as a percent of earning assets		-23.1	%		-32.7	%		-32.7	%

Net interest income at risk measures the risk of a decline in earnings due to changes in interest rates. The first table below presents an analysis of our interest rate risk as measured by the estimated changes in net interest income resulting from an instantaneous and sustained parallel shift in the yield curve over a 12-month horizon at March 31, 2016. Shifts are measured in 100 basis point increments (+400 through -100 basis points) from base case. We don’t present shifts less than 100 basis points because of the current low interest rate environment. The base case scenario encompasses key assumptions for asset/liability mix, loan and deposit growth, pricing, prepayment speeds, deposit decay rates, securities portfolio cash flows and reinvestment strategy and the market value of certain assets under the various interest rate scenarios. The base case scenario assumes that the current interest rate environment is held constant throughout the forecast period for a static balance sheet and the instantaneous shocks are performed against that yield curve. The second table presents an analysis of our interest rate risk as measured by the estimated changes in net interest income resulting from a gradual shift in the yield curve over a 12 month horizon.

Instantaneous Changes in Interest Rates (In Basis Points)	Percent Change In Net Interest Income
+400	(23.56%)
+300	(13.98%)
+200	(7.88%)
+100	(3.14%)
Base	-%
-100	(3.40%)

Gradual Change in Interest Rates (In Basis Points)	Percent Change In Net Interest Income
+400	(6.37%)
+300	(3.97%)
+200	(2.22%)
+100	(0.87%)
Base	-%
-100	(0.25%)

These scenarios above are both instantaneous shocks and gradual interest rate ramps that assume balance sheet management will mirror the base case. Even if interest rates change in the designated amounts, there can be no assurance that our assets and liabilities would perform as anticipated. Additionally, a change in the U.S. Treasury rates in the designated amounts accompanied by a change in the shape of the U.S. Treasury yield curve would cause significantly different changes to net interest income than indicated above. Strategic management of our balance sheet would be adjusted to accommodate these movements. As with any method of measuring interest rate risk, certain shortcomings are inherent in the methods of analysis presented above. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Also, the ability of many borrowers to service their debt may decrease in the event of an interest rate increase. We consider all of these factors in monitoring exposure to interest rate risk.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As defined by the Securities and Exchange Commission in Exchange Act Rules 13a-15(e) and 15d-15(e), a Company's “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within time periods specified in the Commission’s rules and forms. First Guaranty maintains such controls designed to ensure this material information is communicated to Management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decision regarding required disclosure.

Management, with the participation of the CEO and CFO, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on that evaluation, the CEO and CFO have concluded that the disclosure controls and procedures as of the end of the period covered by this quarterly report are effective. There were no changes in First Guaranty's internal control over financial reporting during the last fiscal quarter in the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, First Guaranty's internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

At March 31, 2016, First Guaranty is subject to various legal proceedings in the normal course of business and otherwise. It is our belief that the ultimate resolution of such claims will not have a material adverse effect on First Guaranty's financial position or results of operations.

Item 1A. Risk Factors

There have been no material changes to our risk factors as disclosed in First Guaranty's Annual Report on Form 10-K.

Item 6. Exhibits

The following exhibits are either filed as part of this report or are incorporated herein by reference.

Exhibit
Number	Exhibit

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.SCH	XBRL Taxonomy Extension Schema.

101.CAL	XBRL Taxonomy Extension Calculation Linkbase.

101.DEF	XBRL Taxonomy Extension Definition Linkbase.

101.PRE	XBRL Taxonomy Extension Presentation Linkbase.

101.LAB	XBRL Taxonomy Extension Label Linkbase.

101.INS	XBRL Instance Document.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, First Guaranty has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FIRST GUARANTY BANCSHARES, INC.


Date: May 16, 2016		By: /s/ Alton B. Lewis
		Alton B. Lewis
		Principal Executive Officer


Date: May 16, 2016		By: /s/ Eric J. Dosch
		Eric J. Dosch
		Principal Financial Officer
		Secretary and Treasurer

TABLE OF CONTENTS

Part I. Financial Information Item 1. Consolidated Financial Statements Note 1. Basis Of Presentation Note 2. Recent Accounting Pronouncements Note 3. Securities Note 4. Loans Note 5. Allowance For Loan Losses Note 6. Goodwill and Other Intangible Assets Note 7. Other Real Estate (ore)Note 8. Commitments and Contingencies Note 9. Fair Value Note 10. Financial Instruments Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II. Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 6. Exhibits The Following Exhibits Are Either Filed As Part Of This Report Or Are Incorporated Herein By Reference Item 6. Exhibits

FGBI 10-Q Quarter ended March 31, 2016